DEXs

DEXs, or decentralized exchanges, are trading venues that operate on blockchain networks using smart contracts to enable direct peer-to-peer token swaps without relying on a centralized intermediary. They allow users to retain control of their funds and interact with programmable trading protocols.

Most DEXs fall into two broad models: automated market makers (AMMs) and on-chain order books. AMMs use liquidity pools and pricing formulas (most commonly constant product x*y=k) to determine prices and execute trades against pools. Liquidity providers supply tokens to pools and earn fees. On-chain order-book DEXs, by contrast, host a decentralized matching engine that records orders on-chain, sometimes with off-chain order relays to reduce gas costs.

Liquidity is essential: users deposit equal-valued tokens into liquidity pools, earning fees but exposing them to impermanent loss when relative prices diverge. Trading can be subject to slippage, front-running, and MEV. DEXs are generally permissionless, requiring only a compatible wallet and network connectivity.

Compared with centralized exchanges, DEXs reduce custody risk and single points of failure but can offer lower liquidity, slower settlement during network congestion, and potentially higher fees. The user experience can be more complex, and smart-contract risk remains a concern.

Notable examples include Uniswap and SushiSwap (AMM-based) on Ethereum, Curve Finance focusing on stablecoin trades, Balancer with multi-asset pools, and PancakeSwap on other networks. The ecosystem is rapidly evolving, with layer-2 and cross-chain DEX designs aiming to improve scalability and interoperability.