What Is DEX (Decentralized Exchange)?
Also known as: Decentralized Exchange
In short
A DEX (decentralized exchange) is a type of exchange where cryptocurrency trading takes place through smart contracts instead of a central company, users keep their assets in their own wallets throughout the trade, and an account is generally not required.
Most DEXs use the automated market maker (AMM) model. In this model, buyers and sellers are not matched directly; users trade against pools into which liquidity providers deposit tokens, and the price is determined by a formula based on the ratio of the assets in the pool. Uniswap, Curve and PancakeSwap are examples of this model. Some platforms such as dYdX implement the order book model in a decentralized structure, while aggregators scan multiple DEXs to try to find a suitable price for a trade.
On DEXs, new tokens can be listed without permission, and transactions take place transparently on the blockchain. Because the user does not entrust their assets to the exchange, they are not directly affected by the bankruptcy or hack risks of centralized exchanges.
On the other hand, there are distinctive risks: high slippage in low-liquidity pools, sandwich attacks by MEV bots that front-run transactions, gas fees that rise during network congestion, and scam tokens that can be listed easily are chief among them. Smart contract bugs and a user approving a malicious contract can also lead to loss of funds.
Last updated: · This content is for information purposes only and is not investment advice.