DEX (Decentralized Exchange) - what is it, and how does it work?

Decentralized exchanges (DEX) are a new format of exchanges that act as an intermediary for traders and investors.

Cryptocurrency trading is one of the most promising areas. To carry out such activities, special platforms - centralized exchanges, otherwise called CEX- must be used. On such services, the orders of those who want to buy and sell digital coins are automatically compared, ensuring the technical part of the transaction. That is, the principle of operation is the same as on traditional stock exchanges. However, such services are predominantly privately owned, which means the constant presence of an intermediary and increased associated costs for each order. In addition to control over all transactions, the owners of centralized exchanges also have access to personal data.

Decentralized exchanges - DEX - are a fundamentally new solution that allows you to solve all the relevant problems for traders. The exchanged assets pass through the transaction's direct participants without third parties' involvement.

Key Benefits of Decentralized Exchange

Decentralized exchanges are gaining more and more popularity due to the following advantages:

  • the most simplified trading interface;
  • absolute anonymity of all clients, including the exclusion of such procedures when using the Decentralized Exchange platform as registration and verification of personal data;
  • any restrictions on the use of client's own funds are completely excluded since there are no regulators of the process and no supervisory control over the movement of funds;
  • instant update of the listing of available assets;
  • the opportunity to earn passive income by depositing assets into liquidity pools.

Due to open and transparent conditions, if desired, users of a decentralized exchange can directly participate in its management and development based on token farming.

Disadvantages of DEX

Despite its widespread adoption, there are better platforms than DEX. For example, users note such disadvantages as the possibility of cryptocurrency exchange only within one blockchain. If the cross-bridge technique is used, then this directly affects the complication of the conversion processes.

Limited functions and inconsistent losses are also disadvantages of DEX, as is the inability to cancel a transaction, even in the event of fraudulent actions by one of the users or incorrectly entered data.

On decentralized exchanges, an effect such as asset price slippage is observed, which ultimately promises financial drawdowns or benefits in a smaller amount than expected. Commissions for trades through DEX are often higher than when working on centralized exchanges.