Decentralised Exchange
A decentralised exchange (DEX) is a peer-to-peer trading platform built on smart contracts that allows users to swap cryptocurrencies directly from their own wallets without a central intermediary holding funds or requiring accounts.
✦ Key Insight
DEXs eliminate custodial risk, enable 24/7 permissionless trading of any token, and form the backbone of DeFi. They give traders full control and access to long-tail assets unavailable on centralized venues.
✕ Common Misconceptions
Using fake front-ends; setting excessive slippage; providing liquidity without understanding impermanent loss; neglecting to revoke approvals after use.
Detailed Explanation
How It Works: Most use automated market makers (AMMs) with liquidity pools. Users connect a wallet, approve tokens, and the smart contract executes the swap according to a pricing formula. Liquidity providers earn fees; governance is often token-based.
FAQs:
Need KYC?
Generally no.
Fiat pairs?
Rare, crypto-to-crypto only.
Safer than CEX?
For custody yes; users must still protect against smart-contract and phishing risks.
In Practice
Dig Deeper
Liquidity Pool
A liquidity pool is a collection of crypto assets locked in a smart contract that allows users to trade tokens on decentralized exchanges without relying on a traditional order book.
DEX Aggregator
A DEX aggregator is a protocol or service that sources liquidity from multiple decentralized exchanges and routes a user’s trade across the best available pools or paths to achieve optimal price and minimal slippage.
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