A decentralized exchange is an exchange that operates without a central authority. This means that a user should be in control of his funds all the time. This also reduces risk of theft from hacking of exchanges. They are generally more anonymous, as they do not require KYC procedures.
So, why is Binance DEX not decentralized?
1. There is a central authority
Binance DEX is running on the core blockchain of BinanceChain, similar to how ERC20 tokens are run on the Ethereum blockchain. Trading on Binance DEX will be done by sending order transactions to BinanceChain. Thus, tokens that are not issued on BinanceChain will not be tradable on Binance DEX.
Thus, to combat this, Binance is creating a BinanceChain version of those popular tokens to allow users to trade on their DEX. This means that for Bitcoin, Binance would come up with a BinanceChain version of it, known as BTC.B. Thus, Binance’s promise is that 1 BTC.B will always be equal to 1 BTC, and users would be able to swap back anytime they want.
This defeats the purpose of having a DEX. By having such as solution, a user would have to trust that Binance will give 1 BTC for every 1 BTC.B the user has. The user also has to trust that Binance wouldn’t get hacked, causing them to lose their funds.
2. It is not anonymous
One of the key features of a DEX is that users can trade anonymously. Thus, users would not have to insert their personal particulars. However, Binance DEX requires users to do KYC, aka prove their identity. I understand that it is due to regulatory requirements, but this defeats the purpose of having a DEX. Furthermore, Binance.org, the DEX, has blocked off several countries from using the platform.
In summary, Binance’s DEX does not have the features of a real decentralized exchange. Binance still has the power to take control of your assets, and they know your identity. Until a fully decentralized mechanism is implemented to link BinanceChain with other blockchains, Binance DEX would just be useful to trade new tokens that are running on BinanceChain BEP-2’s blockchain.