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In an LED grid where we are using multiplexing to control a ton of LEDs, where we are scanning each row quickly and using persistence of vision to enjoy the full picture at once; let's say that there are 10 rows so that on average each LED is just lit up 1/10th of the time.

Whereas in PWM, we have duty cycle, say the duty cycle is 10% on and 90% off, so the LED seems to be at only 10% brightness.

My question is, how are the above two situations different for an LED; Why does PWM dim the LED (apparent to the human eye), and why does multiplexing not dim the LED?

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Multiplexing does dim the LEDs. The LED does not care if the row/column scan rate puts it at 10 % duty cycle or if it's directly driven with 10 % PWM duty cycle.

For a multiplexed setup, you take this into account and you have to choose brighter LEDs or higher drive current to get to the desired brightness. Since it is popular, you can easily find small indicator LEDs which allow very high peak drive current compared to DC to overcome this. If that's too dim, there are matrix drivers available to sub-divide your matrix and effectively increase your duty cycle to each LED as opposed to directly scanning from an MCU. Brighter LEDs at higher current is the more popular opinion.

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Both turn the LED 100% on or 100% off, and so both of them are exactly the same, and will dim to exactly the same brightness if the percent on-time is the same, as @winny has said.

But here's the difference. With PWM dimming, you want it to dim, but can turn the dimming off if desired. With multiplexing, you can't turn the dimming off -- you can only make it dimmer, which is seldom wanted.

With multiplexing, it's often a battle of trying to get enough illumination -- a battle between the "forced dimming" and exceeding the max pulse current of your chosen LED's.

When the dimming is forced, and unwanted, it's not going to be part of the name, or otherwise touted as a feature.

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