Source: Google Gemini

Decentralized Exchanges (DEXs) are changing the way people are trading digital assets, introducing a different layer of control, privacy, and security in the digital currency market. However, what precisely DEX is and how it can be distinguished among the conventional centralized sites?

Knowledge of Core Concept

Decentralized Exchange (DEX) is a blockchain-based platform that allows users to exchange cryptocurrencies peer-to-peer without using a central party or intermediary. In contrast to the Centralized Exchanges (CEX), the users of DEXs have full control of the stack at any time, the money is in the given direction.

By using Smart Contracts, a self-executable code running on the blockchain, rather than entrusting your crypto to a third party, DEXs enable peer to peer trading. This makes trades to be safe, transparent and self-governing without trusting anyone.

What Is DEX?

The vast majority of contemporary DEXs rely on an Automated Market Maker (AMM) model. Instead of matching the buyers and sellers in the order books, AMM utilizes liquidity pools, i.e., pools of token pairs offered by liquidity (LP) providers.

The process goes like this:

1. The suppliers of liquidity place tokens into pools (e.g., ETH / USDT).
2. Direct token swappers occur on these pools.
3. Liquidity providers, in its turn, are rewarded with a part of trade fees.

This setup enables instantaneous, permissionless trade not requiring a counterparty present when trade is executed.

Decentralized Exchanges Main Advantages

Enhanced Security

Money is stored in users’ wallets until the conclusion of trade and hence, eliminates chances of centralized hacks.

Increased Privacy

Majority of DEXs do not need to undergo the process of KYC (Know Your Customer). It allows users to trade without revealing their identity.

Accessibility

If you have a crypto wallet and internet, you can use a DEX from anywhere, no country limits or government blocks.

Future of Trading