Decentralized Exchange (DEX)

A decentralized exchange (DEX) is a crypto and digital asset exchange model that allows for trading directly between users. In this model, users trade assets through the peer-to-peer model without a central authority.

Crypto exchanges started as centralized, with decentralization exchanges coming up much later. In a decentralized exchange, their backend exists on a blockchain, unlike in a centralized exchange where it is moved to another entity.

The feature of on-chain order books in DEX makes it more transparent as transactions take place on-chain. However, most DEX faces issues with speed and liquidity compared to their centralized counterpart. Another distinguishing feature of DEX is that it takes away the hassle of KYC during the registration process. Arguments in favour of this flow from the concept of cryptocurrencies as a form of hidden way of transacting without interference KYC regulations defeat that purpose.

Decentralized exchanges also allow users to trade unpopular tokens that haven’t been listed on centralized exchanges. In addition, most decentralization exchanges now carry the feature of automated market makers (AMM) eliminating the idea of order books and working with smart contracts to create markets.