DEX (Decentralized Exchanges)

What is a DEX? A DEX stands for Decentralized Exchange. To understand it, let's first look at its counterpart, the centralized exchange.

Centralized Exchange (CEX):

  • Operated by a centralized organization or company.

  • Users deposit their funds into the exchange's wallets.

  • The exchange is responsible for matching buy and sell orders, holding users' funds, and ensuring transactions are executed.

  • Examples of common CEXs include Coinbase, Binance, and Kraken.

You can see more Centralized exchanges on CoinGecko.

Decentralized Exchange (DEX):

  • Operates without a central authority or intermediary.

  • Trades occur directly between users, peer-to-peer.

  • Uses smart contracts (self-executing contracts with the terms of the agreement directly written into code) to facilitate, verify, and enforce the negotiation or performance of a trade.

  • Users retain control of their funds and only send them when a trade is executed.

  • Examples include Uniswap, GMX, and dYdX.

You can see more Decentralized exchanges on CoinGecko.

Key Advantages of DeFi Exchanges:

  1. Security: Since users don't deposit their funds into a centralized wallet, there's a reduced risk of large-scale hacks that have plagued some centralized exchanges.

  2. Censorship Resistance: Without a central authority, it's harder for governments or other entities to shut down or regulate the exchange.

  3. Privacy: Often, DEXs don't require users to undergo identity verification, allowing for more anonymous trading.

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