Glossary

DEX (Decentralized Exchange)

Plain-language definition Crypto glossary

Key takeaways

A DEX, or decentralized exchange, lets users trade cryptocurrencies directly from their own wallets through smart contracts, with no company holding their funds or matching their trades.
Most DEXs use an automated market maker model that prices trades against pools of tokens supplied by liquidity providers, who earn a share of the fees, rather than matching individual buyers and sellers.
A DEX is non-custodial and permissionless, letting you keep control of your assets and trade tokens no centralized venue lists, with trade-offs of gas fees, smart-contract risk, and slippage in shallow pools.

Definition

A decentralized exchange, or DEX, lets users trade cryptocurrencies directly from their own wallets through smart contracts, without a company holding custody of the funds. Many DEXs use an automated market maker model, where trades execute against pooled liquidity provided by other users rather than being matched against a traditional order book.

Why it matters

Trading on a DEX removes counterparty and custodial risk tied to a centralized exchange operator, since funds never leave the user’s wallet until a trade executes. In exchange, users take on smart contract risk, are fully responsible for their own wallet security, and may encounter lower liquidity or higher price impact on less popular trading pairs than a large centralized venue.

Example

Swapping one token for another through a DEX typically also requires paying a gas fee to the underlying network.

This is educational information, not financial advice. Coingsty does not recommend buying or selling any asset.

FAQ

Frequently asked questions

How is a DEX different from a centralized exchange?

A centralized exchange is run by a company that holds your funds and matches trades on an internal order book, while a DEX lets you trade directly from your own wallet through smart contracts. With a DEX you keep custody of your assets the whole time, but you take on more responsibility for your own security.

What is an automated market maker?

An automated market maker is the model most DEXs use to price trades against pools of tokens instead of matching individual orders. Liquidity providers supply those pools and earn a share of the trading fees in return.

What is slippage on a DEX?

Slippage is the difference between the price you expect and the price you actually get, and it grows when a liquidity pool is shallow relative to your trade size. Along with gas fees and smart-contract risk, slippage is one of the main trade-offs of trading on a DEX.