DeFi
DEX
Decentralized Exchange - a cryptocurrency exchange that operates without a central authority, using smart contracts to facilitate peer-to-peer trading directly from user wallets.
Last updated: January 5, 2025
What is a DEX?
A DEX (Decentralized Exchange) is a cryptocurrency exchange that operates through smart contracts, allowing users to trade directly from their wallets without depositing funds to a central entity.
DEX vs CEX
| Feature | DEX | CEX |
|---|---|---|
| Custody | Your wallet | Exchange holds |
| KYC | Usually none | Required |
| Token variety | Any token | Curated |
| Fees | Gas + swap fee | Trading fees |
| Speed | Blockchain speed | Instant |
| Support | None | Customer service |
How DEXs Work
AMM Model (Most Common)
- Liquidity providers deposit token pairs
- Smart contract creates liquidity pools
- Prices set by algorithm (x*y=k)
- Traders swap against pools
- LPs earn trading fees
Order Book DEXs
- More like traditional exchanges
- Limit orders possible
- Examples: dYdX, Serum
Popular DEXs by Chain
Ethereum
- Uniswap - Largest by volume
- Curve - Stablecoin focus
- 1inch - Aggregator
BNB Chain
- PancakeSwap - Most popular
Solana
- Jupiter - Leading aggregator
- Raydium - Major liquidity
Layer 2s
- Uniswap on Arbitrum/Optimism
- Velodrome (Optimism)
- Camelot (Arbitrum)
Using a DEX
Steps to Trade
- Connect wallet (MetaMask, etc.)
- Select tokens to swap
- Set slippage tolerance
- Review transaction
- Confirm in wallet
- Pay gas fee
Important Settings
- Slippage - Price movement tolerance
- Gas - Transaction speed
- Deadline - Maximum wait time
DEX Advantages
Self-Custody
- You control your keys
- No exchange withdrawal limits
- Can’t be frozen by exchange
Privacy
- No KYC requirements
- Pseudonymous trading
- No account creation
Token Access
- Trade any token on the chain
- New tokens immediately
- No listing process needed
Always Available
- No maintenance downtime
- No geographic restrictions
- 24/7 operation
DEX Disadvantages
User Experience
- Steeper learning curve
- More responsibility
- No customer support
Costs
- Gas fees can be high
- Slippage on large orders
- Failed transactions still cost gas
Risks
- Smart contract vulnerabilities
- Scam tokens easy to create
- Impermanent loss for LPs
DEX Aggregators
What They Do
- Search multiple DEXs
- Find best prices
- Split trades for efficiency
Popular Aggregators
- 1inch
- Jupiter (Solana)
- Paraswap
- 0x
Providing Liquidity
How It Works
- Deposit equal value of two tokens
- Receive LP tokens
- Earn trading fees
Risks
- Impermanent loss - Value change vs holding
- Smart contract risk - Bugs/hacks
- Token risk - One token may crash
DEX Security Tips
Before Trading
- Verify contract addresses
- Check token legitimacy
- Start with small amounts
During Trading
- Understand slippage
- Review transaction details
- Don’t rush
After Trading
- Verify tokens received
- Revoke unnecessary approvals
- Track transactions
CEX to DEX Bridge
When moving from Binance or Coinbase to DEXs:
- Withdraw from CEX to your wallet
- Ensure correct network (don’t lose funds!)
- Connect wallet to DEX
- Start trading
The Future of DEXs
Trends
- Better UX approaching CEX
- Cross-chain swaps
- More capital efficiency
- Intent-based trading
Ready to Start Trading?
Now that you understand dex, explore the best exchanges to begin your crypto journey.