DEX

A decentralized exchange (DEX) is a cryptocurrency exchange that operates without a centralized intermediary. It enables peer-to-peer trading of digital assets on a blockchain through smart contracts, with users maintaining control of their private keys and funds. DEXs typically run on public blockchains such as Ethereum, Binance Smart Chain, or others, and rely on programmable agreements to match trades and settle settlements.

There are two main model families. In automated market maker (AMM) DEXs, liquidity providers deposit pairs of tokens into liquidity pools and trades occur against the pooled reserves using a pricing algorithm such as the constant product formula. In order-book or hybrid DEXs, an on-chain or off-chain order book matches buy and sell orders, sometimes using market makers to supply liquidity. Some platforms combine features, improving routing and execution.

Key advantages include non-custodial trading, censorship resistance, and permissionless access. Users typically interact with the system via wallets and can participate as liquidity providers to earn fees. Risks include smart contract bugs and exploits, impermanent loss for liquidity providers, front-running and MEV, high gas costs on congested networks, and regulatory uncertainty.

Prominent examples include Uniswap, SushiSwap, Curve, Balancer, and PancakeSwap. DEXs are often studied as components of decentralized finance (DeFi) and are contrasted with centralized exchanges, which hold users’ funds and act as intermediaries, often with different liquidity and regulatory characteristics.