Decentralized Exchange (DEX)

A decentralized exchange, or DEX, is a trading venue that runs as code on a blockchain. Users connect a wallet, choose a trading pair, and the smart contract executes the swap. There is no sign-up, no identity check, and the user keeps custody of their assets until the moment of the trade. Uniswap on Ethereum is the best-known example, and every major smart contract chain has several.

Most DEXs use an automated market maker model, where trades are executed against pools of tokens rather than an order book. Prices are set by a formula based on the ratio of tokens in the pool. Some newer DEXs, particularly for perpetual futures, use on-chain order books instead.

DEXs offer access to tokens long before they appear on centralized exchanges and remove the risk of an exchange going bankrupt with user funds. The trade-offs are gas fees on every trade, exposure to scam tokens with the same names as real ones, and no recourse if a user sends funds to the wrong address or approves a malicious contract.