What is a Decentralized Exchange DEX? Definition & Guide

Sovereignty, or control over one’s funds, can be exercised freely in DEXs. Users will have full custody of their funds and will be able to use them as they please. Concerns like exchanges freezing their assets or blocking withdrawals rarely happen in DEXs. It needs to be noted that not all decentralized exchanges are created equal, and in practice they range from quasi-decentralized to fully decentralized. DEXs run on blockchains, giving users the Web3 experience that’s non-existent on centralized crypto exchanges.

Disadvantages of DEXs

This is a boon for business travelers who can save a presentation or video to their phone and then project it to a display in a conference room or other business setting. You can also watch videos from Netflix or other streaming services on a separate screen. However, there are some legal requirements when DEXs are partially run by a central authority.

Liquidity Issues

By choosing a DEX aggregator, users can purchase assets in a secure, efficient manner and make use of various liquidity pools from multiple exchanges – all at once. Decentralized exchanges are a trustless solution that allows users to buy and sell cryptocurrency without roping in a third party. Though full decentralization is not yet a reality, different types of DEXs provide varying What is DEX levels of security, privacy, and efficiency from which crypto traders can choose. With sophisticated technology, potentially fewer blockchain security risks, and the ability to self-custody funds, further adoption of decentralized exchanges seems likely. Despite the launch and rise in popularity of numerous DEXs within the past few years, some factors may slow down adoption.

Centralized Exchanges: Pros

Although some DEXs are beginning to offer this service with third-party providers, most still don’t allow credit or debit card usage. The process of registering with a CEX is similar to opening a bank account. Many of us are already familiar with this system, and technical knowledge is not a must-have. Most CEXs offer payment with credit or debit cards, making your first crypto investment as simple as possible. Meanwhile, there’s always an option to choose a DEX aggregator which gathers the best rates from various liquidity providers in a unified interface.

While CEXs often launch new tokens, DEXs still facilitate most new token sales and liquidity. Overall, the chances of making an irreversible mistake like losing access to your funds or transferring it to the wrong address are much lower with a CEX. So if it’s your first time gaining crypto exposure or you prefer a more straightforward, digestible service, a CEX is for you. Historically, buying your first coin or token was one of the most significant barriers to gaining crypto exposure. CEXs now, as a standard, offer credit and debit card options for buying crypto.

Unlike centralized exchanges, decentralized exchanges do not require users to submit identifying documentation. These tokens can only be purchased with native currencies of blockchains, like Ethereum. Centralized exchanges, like Coinbase or Gemini, are usually used to purchase cryptocurrencies with cash. Only some of the most popular tokens may be listed on centralized exchanges. If traders want to buy and sell lesser-known tokens, a DEX is the way to go.

• As they did so, the volume in the pool would rise, reducing its offered price until it matched the wider market.
• Curve Finance is a DEX for stablecoins that runs on Ethereum and several other chains.
• There are over 200 DEXs in 2022, with Uniswap (v3) holding the largest market share by volume.
• The general workflow is incredibly streamlined because the slow speeds of blockchains don’t impede trading, and everything occurs in a single entity’s system.

Though a transformative network upgrade designed with massive scalability solutions has been in development since 2018, DEXs remain subject to first-layer network transaction ceilings. Many parts of the world lack basic financial services, nevermind access to the crypto markets. That’s another pro for DEXs, which can be used by individuals anywhere in the world regardless of financial infrastructure. By placing all stages of an order onto the blockchain, DEXs go through a time-consuming process of asking every node on the network to permanently store the order via miners, as well as pay a fee. First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey.We develop content that covers a variety of financial topics. There are various DEX designs, but the most popular is the automated market maker (AMM).

You need to request a transfer off Coinbase to an external wallet address that you control before the Bitcoin is really yours. If Coinbase is attacked, slowed down, or has technical issues, you don’t have recourse to secure your Bitcoin. This has been a problem so often with many exchanges that “funds are safe” has become a meme in the community as exchange operators attempt to reassure users in the wake of system problems.

• This requires either far higher throughput than most current blockchains can handle or significant compromises in network security and decentralization.
• To better identify what a decentralized exchange is, it’s important to first understand how centralized exchanges work.
• There’s no real way to make sure miners or relayers on a decentralized exchange can’t jump in line for orders.
• As such, the Moralis JS SDK will be the go-to tool for covering blockchain-related backend functionalities.