DEX (Decentralized Exchange)
A DEX, or decentralized exchange, is a trading platform built on smart contracts. You trade directly from your own wallet, and no company takes custody of your funds. Uniswap, Curve and Jupiter are examples.
How a DEX works
Instead of depositing money with a company, you connect a self-custody wallet and approve a transaction. A smart contract executes the swap and sends the tokens straight back to your wallet. Every trade is a blockchain transaction, so you pay a network fee and can verify it on-chain.
Most DEXs use an automated market maker (AMM). Users called liquidity providers deposit pairs of tokens into a liquidity pool, and a formula sets the price based on the ratio of tokens in the pool. Some DEXs use on-chain order books instead, and aggregators route a trade across several pools to find a better price.
Why people use DEXs
You keep control of your keys, you usually need no account, and new tokens can be listed by anyone who creates a pool. DEXs are also the building blocks of DeFi: other applications can plug into their pools directly.
An example
Say you hold 1 ETH in your wallet and want USDC. You open a DEX interface, enter the amount, check the quoted output and minimum received, and sign. The contract takes your ETH, sends USDC from the pool to your address, and a small fee goes to the liquidity providers.
Risks to understand
Smart contracts can contain bugs or be exploited. Anyone can create a token and a pool, so scam tokens, copycats of real projects and honeypots, tokens you can buy but not sell, are common. Large trades in small pools suffer slippage, and bots can front-run visible transactions. Token approvals you sign can remain active and be abused if the contract is malicious.
There is usually no support desk: a transaction sent to the wrong token or address cannot be reversed.
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Frequently asked questions
Do I need KYC to use a DEX?
The smart contracts themselves usually do not ask for identity. Some website front ends restrict access by region, and regulation of DEX front ends is still developing in many countries.
Is a DEX safer than a CEX?
It removes the risk of an exchange holding your funds, but adds smart-contract risk, scam-token risk and full responsibility for your own keys and transactions.
Why did my DEX transaction fail but still cost a fee?
On most chains, validators are paid for processing the transaction even if it reverts, for example because the price moved beyond your slippage tolerance.
Related terms
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