What's DEX

There are two types of cryptocurrency exchanges, centralized exchanges and decentralized exchanges. Currently, centralized exchanges maintain a significant dominant position in the trading market. However, the development of decentralized exchanges should not be ignored, that is, commonly known as DEX, the full name of Decentralized exchange, in simple terms, unlicensed non-custodial exchanges. The main feature is that most of the exchanges without KYC, without registration and login, that is to say, the use of the exchange services provided by the exchange. As a blockchain-based exchange, DEX does not store user funds and personal data on servers, but only serves as an infrastructure to match buyers and sellers who wish to buy and sell digital assets. With the help of a matching engine, such transactions occur directly between participants (peer-to-peer). As a result, users of decentralized exchanges must keep their public and private keys and auxiliary words, and if they are lost, the assets cannot be recovered. There are two types of DEX. The first is an order-based P2P exchange, which uses a bidding model to complete transactions. The second type of DEX is a liquidity pool-based exchange, which accomplishes trading through automated market makers. The algorithms behind liquidity pooling DEXs are called automated market makers (AMMs). For example, Uniswap utilizes an AMM model that allows everyone to earn Uniswap fees for providing liquidity to the exchange. The fee that users earn for providing liquidity on Uniswap is the share they earn from trading activity on Uniswap. The DEX decentralized exchange is an important part of the DeFi ecosystem, which has the role of a centralized exchange (CEX) equivalent to that of an entire cryptocurrency market. While DEX is fully decentralized, transparent and open, it also suffers from inefficient trading and a small user base.

Last updated