DEX is a peer-to-peer marketplace where users may trade cryptocurrencies without an intermediary. DEX exchange replaces middlemen (banks, brokers, payment processors, etc.) with blockchain-based smart contracts that allow asset exchange.
Unlike typical financial transactions, which are opaque and operate via middlemen, DEXs give total transparency into money flow and exchange procedures. DEXs lessen counterparty risk and systemic centralization problems since user money doesn’t flow via a third party’s cryptocurrency wallet while trading.
DEXs are a cornerstone of decentralized finance (DeFi) and a “money LEGO” on which more complex financial products may be constructed.
DEX designs provide varied feature-sets, scalability, and decentralization advantages and trade-offs. Order book DEXs and automated market makers are prevalent (AMMs). DEX aggregators scan numerous on-chain DEXs to determine the best pricing or lowest gas cost for a user’s transaction.
Using blockchain technology and immutable smart contracts gives DEXs great determinism. DEXs perform deals using smart contracts and on-chain transactions, unlike centralized exchanges (CEXs) like Coinbase or Binance. DEXs enable users to keep their cash in self-hosted wallets while trading.
DEX users pay network and trading costs. Trading fees are collected by the underlying protocol, its liquidity providers, token holders, or a mix of these organizations as stipulated by the protocol design.
Strong execution guarantees, enhanced transparency, and permissionless access have democratized trade and liquidity. DEXs entail hazards such as:
Some users may find possessing their private keys frightening. Full ownership over one’s assets is one of Web3’s key features, however many users may prefer a third party to hold their assets. Good security and key management methods may help more people keep complete control over their assets while using an open-source financial services ecosystem.
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