A DEX or decentralized exchange is a platform that facilitates token swaps without any intermediaries involved.
Understanding the Term
A decentralized exchange or DEX is a peer-to-peer virtual marketplace that allows cryptocurrency users to trade tokens in a non-custodial manner. It differs from centralized exchanges in that it does not need an intermediary for the transfer and custody of funds. They provide complete transparency and reduce counterparty risk as user funds do not have to go through a third party’s cryptocurrency wallet during trading. This eliminates the systematic risks associated with centralization in the cryptocurrency ecosystem.
There are two types of DEX exchanges available – Automated market makers (AMMs) and order book DEXs. Users are required to pay both trading fees and network fees. Network fees refer to the gas cost of the on-chain transactions. The trading fees are collected by token holders, the underlying protocol, liquidity providers, or some combination of the three.
DEX or Decentralized exchanges allow token swaps in a non-custodial fashion. They provide all the same services as centralized exchanges but are trustless. This means that the privacy, personal data, and funds of the users are preserved and protected. They can also prevent price manipulation or fake trading volume glitches experienced by a lot of cryptocurrency traders.