The distributed architecture of decentralized exchanges and full user control over their own funds entails a number of difficulties.
Inability to restore access: For example, due to lack of a KYC process and the ability to cancel a transaction in the event of a broken passwords or loss of a private key, the user cannot recover his or her data and return the assets. Chargeback and refund procedures are incompatible with a distributed registry. Users who have committed an operation by mistake or have lost control over their keys are not able to recover their access.
Small set of options: Many options for traders, such as stop loss, margin trading or lending, are not available for users of most DEXs. Since many decentralized exchanges are managed by smart contracts, cryptocurrencies that do not support interaction with smart contracts cannot bargain on them.
Low liquidity: Decentralized exchanges usually have a much smaller pool of liquidity compared to centralized sites. Thus, while Bitshares DEX has a daily volume of 197 BTC, the same parameter in Binance reaches 227,123 BTC.
Such a difference is caused by the fact that traders prefer centralized services, where the choice of instruments, currency pairs and orders themselves are much greater than on a DEX. As a result, the decentralized service falls into the so-called vicious circle — i.e., there are few users due to low liquidity, while the achievement of liquidity is impossible without a large number of traders.
Scalability issues: An influx of a large number of people who wish to trade cryptocurrencies will almost inevitably cause a large load on the network and may cause delays, an increase in commissions and all other problems already familiar from stories with centralized exchanges.
No support service: A decentralized exchange, by definition, cannot have a support service that can handle transactions or user accounts. When choosing such an exchange for trading digital money, the user is fully responsible for their funds and, in the event of losing a private key or sending a wrong transaction, they cannot apply for qualified assistance. The lack of advance support service also means that a dramatic increase in the number of user requests may lead to difficulties with scalability, and an operator response time may increase in the event of technical problems.
Limited speed: Transactions take time to be checked and confirmed on a blockchain, and the processing time does not depend on the exchange, but on the miners. Since DEXs are less popular than their centralized analogues, users may face difficulty finding someone to match their buy or sell orders — or with making a deal at a good price. Buying or selling new currencies or those with low trading volumes can be even more difficult.
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Source: Cointelegraph News