Decentralized Exchange (DEX)
In short: A decentralized exchange (DEX) is a peer-to-peer platform that lets users buy and sell cryptocurrencies without the need for an intermediary.
A decentralized exchange (DEX) is a peer-to-peer platform that lets users buy and sell cryptocurrencies without the need for an intermediary. Trades are carried out by smart contracts, directly from the users' own wallets.
Why it matters
On a centralized exchange such as EX5, users deposit funds that the exchange holds in custody, and orders are matched in its order book. On a DEX, users keep control of their private keys and trade straight from their wallets, so there is no exchange account and no operator holding the funds. Many DEXs use liquidity pools and pricing formulas instead of an order book. The trade-offs include network fees, possible slippage, smart contract risk, and the fact that anyone can list a token, including fake ones.
Example
A user wants to swap a stablecoin for another token. They connect a self-custody wallet to a DEX, enter the amount and approve the transaction. A smart contract takes the stablecoin from the wallet, adds it to a liquidity pool and sends back the other token at the price set by the pool's formula, all in a single on-chain transaction.