A Decentralized Exchange (DEX) is a peer-to-peer marketplace that allows users to trade cryptocurrency directly from their wallets without a central intermediary.
Decentralized Exchange (DEX) is a peer-to-peer marketplace that allows users to trade cryptocurrency directly from their wallets without a central intermediary.
To understand a DEX, it's important to first understand its centralized counterpart, a Centralized Exchange (CEX). On a CEX, you deposit your funds into a company-controlled wallet and trust them to execute your trades and hold your assets. This provides a user-friendly experience, but it runs counter to the core principles of decentralization.
A DEX, on the other hand, is a set of automated smart-contracts that live on a blockchain, such as Ethereum. When you use a DEX, you connect your wallet directly to the protocol, and your funds never leave your control. All trades are executed automatically on the blockchain, ensuring that the process is transparent, secure, and permissionless.
There are a few key types of DEXs, but the most common is an Automated Market Maker (AMM). An AMM uses liquidity-pools, which are crowdsourced collections of assets locked in a smart-contract. Users who want to trade can swap assets directly from the pool, rather than waiting for a specific buyer or seller.
The funds for the liquidity-pool are provided by users, known as liquidity-providers, who earn a portion of the trading fees. This system allows for high liquidity and efficient trading, even for new altcoins that are not yet listed on a CEX.
DEXs are the foundation of the DeFi movement. They give individuals full custody of their assets and the ability to interact with financial products on their own terms. By removing the need for intermediaries, DEXs have created a more open, transparent, and censorship-resistant financial system that is accessible to anyone with an internet connection.
When a well-known person (a KOL) tells their followers what to buy or sell. This can be very risky.
A set of rules on a blockchain that allows users to lend and borrow crypto without a bank.
How easily you can buy or sell a cryptocurrency without changing its price much. High liquidity means it’s easy to trade.
A big pool of cryptocurrency that users can deposit their assets into to help exchanges function. They earn rewards for their contribution.
Maker fees are paid when you add a new order to the exchange's order book. Taker fees are paid when you fill an existing order.
A market order is a quick trade at the current best price. A limit order is a trade you set to happen only when the price reaches a specific value.
