A Decentralized Exchange (DEX) is a type of cryptocurrency exchange that operates without a central authority. Instead of using intermediaries like traditional (centralized) exchanges (CEXs) such as Binance or Coinbase, DEXs allow users to trade directly with each other using smart contracts on a blockchain.
Key Features of a DEX
Non-Custodial – Users retain control of their funds; no need to deposit assets into an exchange wallet.
Peer-to-Peer Trading – Transactions occur directly between users via liquidity pools or order books.
Smart Contracts – Automated self-executing contracts handle trades securely.
Privacy – No need for identity verification (KYC) in most cases.
Security – Since there's no central entity holding funds, the risk of hacks is lower compared to CEXs.
Types of DEXs
1. Automated Market Makers (AMMs) – Use liquidity pools instead of traditional order books (e.g., Uniswap, PancakeSwap, Curve).
2. Order Book-Based DEXs – Similar to traditional exchanges but decentralized (e.g., dYdX, Serum).
3. Aggregator DEXs – Find the best prices across multiple DEXs (e.g., 1inch, Matcha).
Advantages & Disadvantages
✅ Pros
No third-party control over funds.
Greater privacy and censorship resistance.
Lower fees (sometimes).
❌ Cons
No customer support if something goes wrong.
Smart contract vulnerabilities can lead to exploits.
Limited liquidity compared to major CEXs.
