Decentralized Exchanges (DEX): The battle between network fees and pool fees, and why custody matter

Disclaimer: Content does not constitute investment advice. Trading involves risks—please invest with caution!

Decentralized versus centralized cryptocurrency exchanges: The real difference beyond fees

Decentralized cryptocurrency exchanges (DEX for short) are programs running on the blockchain that automatically perform redemption transactions without requiring any company to hold customer funds. Users using DEX pay two types of fees: network fees paid to the blockchain and agreement fees paid to the pool of funds that provides liquidity. At present, the network processing fee for a single redemption on the Ethereum network is about three to five cents, which actually makes the "handling fee" no longer the main reason for choosing DEX.

The remaining core question is something that rates cannot answer: Who keeps your assets? Who is responsible when something goes wrong? Who provides the tax records? This paper compares the costs of these two paths to reveal the real differences.

The difference between a decentralized exchange and a centralized exchange

In a centralized exchange (often called CEX), you transfer euros to a company account, purchase tokens and keep them on the platform. The platform records holdings in your internal account, matches buy and sell orders in its own order book, and holds the private key.

In a decentralized exchange, assets remain in your own wallet. You just need to connect your wallet to the website interface, confirm your signature, and the program on the blockchain will perform the redemption. There are no advance receipts, no accounts, no registrations, and no identity verification. This eliminates counterparty risk, but also means there is nowhere to correct mistakes.

The second practical limitation lies in the funding itself: DEX does not accept euros. Entering the crypto market almost always requires going through a centralized exchange or broker before decentralized redemption can take place. Therefore, these two routes are often not substitute relationships, but successive steps.

How an automated market maker (AMM) works

An automated market maker (AMM for short) is a liquidity pool consisting of two types of encrypted assets, and its price is determined entirely by the proportion of the two asset balances. There are no order books and no counterparties who want to sell at your price.

When you put Asset A into the pool, you take out Asset B. This causes the balance of Asset A to increase and the balance of Asset B to decrease, so each exchange causes the price to go against you. When making small conversions in large pools, this price offset is almost negligible; but when making large conversions in small pools, this will become the main cost item. Those who provide the liquidity pool charge a fee paid by each changer.

Current status of Ethereum network fees: Three to five cents

Network fees are fees charged by the blockchain to execute transactions; it depends on the computing load of the operation and network requirements, not the amount exchanged. It is paid in Ether.

On October 9, Ethereum's Gas price was just below 0.12 Gwei, or about 1 - 800 millionth of Ethereum per computing unit. A simple redemption through a decentralized exchange requires approximately 120,000 to 200,000 such computing units. Whether you exchange 50 euros or 50,000 euros, the result is three to five cents.

This is a snapshot data, not a fixed rule. During the period of high demand, the Gas price reached more than 30 Gwei; the same conversion cost at this time was about ten euros. Internet fees are the only project that may fluctuate 200 times in two days, and have the greatest impact on small amounts of money.

Fund pool fees are the real price, not network fees

In contrast, liquidity pool fees are calculated on a percentage basis and incurred on each redemption. Large decentralized exchanges charge fees based on the level of trading pairs; a common ladder is 0.01% for stablecoin pairs, going through 0.05% and 0.30% to 1.00% for rare assets.

This puts the two routes in the same order of magnitude. The centralized exchange also charges fractions of a percent (a few tenths of a percent) based on the order size, depending on the platform and transaction volume; the actual applicable rates are shown in the price list of each provider. The claim that "decentralization is simply cheaper" cannot withstand arithmetic scrutiny because it only applies to network fees and is self-defeating in the face of pool fees.

The break-even point is only around a few euros. Beyond this limit, the advantage of network fees is no longer important.

Calculation of break-even point

Take today's numbers as an example (for reference only, non-investment advice): If the network fee is set at four cents and the centralized exchange fee is set at one percent (1%), then when the order size is four euros, the cost will be the same for both routes. If the centralized exchange rate is one-quarter percent (0.25%), the break-even point is 16 euros; if it is one-tenth percent (0.1%), it is 40 euros.

Beyond these amounts, network fees become negligible, determined by whose percentage fee is lower. Below these amounts, even if the network fee is only four cents, the decentralized route is not cost-effective because the time it takes to connect the wallet, confirm the signature and check the target price is disproportionate to a ten-euro exchange. Users who regularly purchase small amounts of money generally perform better when using centralized providers 'fixed investment plans.

Custody: Access cannot be restored in DEX

This is the key difference that makes fee calculations redundant. At a centralized exchange, you can reset your password, contact the support team, and complain in disputes. If you lose access to your wallet, assets will be lost forever, regardless of the amount.

The same goes for mistakes in the redemption process. Any signature you confirm will be executed; incorrect target addresses, cloned portals, or tolerances that are too wide cannot be revoked. For details of which device protection key and possible errors during the setting process, see our Hardware Wallet Comparison article. Decentralized exchanges cannot be used without self-custody, and anyone who doesn't trust themselves to take on this responsibility has answered questions about DEX.

Regulation and MiCA: Responsibility for decentralized exchanges

Starting from 2025, centralized exchanges serving German customers will need to be authorized and regulated as crypto asset service providers. See our article on the Crypto Market Supervision Act for details of German legislators 'regulations on this license.

Classification is controversial for agreements without back-to-back providers: When an interface, foundation or development team is considered a service provider is reviewed by regulators on a case-by-case basis, with no clear boundaries. Regardless of which interpretation, the consequences for users are the same: there are no authorized contract partners, no complaints bodies, and no requirement to isolate customer funds because there are no customer funds.

A common misconception needs to be corrected here: deposit insurance also does not protect crypto assets on centralized exchanges. Regulation provides organizational obligations, complaint channels and accountable entities, rather than guarantees for assets.

Nearly one-fifth of spot transactions are conducted through decentralized exchanges

Relative size helps understand the context. On October 9, the 24-hour trading volume of decentralized exchanges was approximately US$10 billion, and the spot business trading volume of the top 20 centralized venues was approximately US$44 billion. Decentralized locations account for 18% to 19% of the total, depending on whether certain products that are not settled on the blockchain are included.

The distribution within decentralized transactions is more concentrated: Uniswap alone (its two current versions alone) carries approximately US$3 billion, accounting for nearly one-third. This was followed by PancakeSwap (approximately $680 million) and Aerodrome on Base (approximately $620 million). Anyone doing a decentralized exchange will end up concentrated in a few locations, while in smaller locations, the price deviations mentioned in the automated market makers section will become apparent.

Slide point: The amount determines the price you get.

Slide point is the deviation between the price displayed on the interface and the actual execution price. In a decentralized exchange, you set your own tolerance, usually expressed as a percentage.

This is the most delicate part of the entire operation. Setting the tolerance too tight will cause redemption to fail, but network fees will still have to be paid. Setting the tolerance too wide will open the door to inferior prices and may even be deliberately exploited by third parties who see large orders on the network and insert transactions before and after them. In practice, this means that the smaller the liquidity pool and the larger your amount, the more you need to carefully check the execution price displayed, before, rather than after, signing.

Tax: Every redemption on DEX is a disposal behavior

The decentralized approach has no tax advantage, which many people underestimate. According to Article 23 of the German Income Tax Law, gains from private sales of crypto assets are subject to tax if the period from purchase to disposal is less than one year; after more than one year, they are exempt. Starting from 2024, the annual tax exemption for all private disposals is € 1,000, with the excess subject to tax on all proceeds.

Disposition not only refers to conversion into euros, but also includes conversion into another crypto asset. The Ministry of Finance's announcement of March 6, 2025 clearly stipulates this and replaces the old announcement of 2022. Therefore, the conversion of Ether to stablecoin constitutes a taxable event like a sale, even though no euro has been moved.

In addition, each redemption starts a new one-year cycle for newly received assets. If you exchange back and forth multiple times over a year, the clock will be reset each time, which is a realistic model for decentralized exchanges and their low network fees. As for the impact of changing trading platforms on deadlines, see our article on switching crypto exchanges: Simply moving to your own address does not constitute a sale.

Records: What the tax department requires you to do on a decentralized exchange

A centralized exchange will keep books, display historical records, and usually provide annual reports. A decentralized exchange does not keep books for you. What remains are entries in the public blockchain, which are complete but not sorted by individual.

Since the 2025 announcement, tax authorities have required complete transaction records and consistent market value determinations. Regarding the order in which positions are disposed, the tax authorities stipulate that the unit that obtains the first is regarded as the first to sell; in 2025, a tax court also recognized the acceptability of the reverse order, which does not make the situation easier for investors. For details of what records are required during audits, see our article on crypto tax audits.

In practice, this means doing three things before making the first decentralized redemption: Write down your own wallet address, record the date, quantity and value of each redemption, and use a tool that can read entries from the blockchain. If you wait until the end of the year to start rebuilding past prices, it will be more work than recording itself.

What DEX is not: leverage, perpetual contracts and forecast markets

In the same world, there are products that have nothing to do with simple redemption. Perpetual contracts are leveraged open futures contracts. Changes in price in an unfavorable direction will lead to forced liquidation. These products are similar in display, but are not comparable in terms of risks; they fall into separate treatment categories, as detailed in our comparison of sustainable DEX.

Therefore, this article has a clear definition: it refers to the exchange of one crypto asset for another at the current price, without leverage, no capital costs, and no liquidation risk. Anyone who strays into a leveraged product while browsing a decentralized interface changes the product domain, even if the page looks the same. There, total losses can occur in minutes.