What is a decentralized exchange (DEX)
Decentralized exchanges (DEXs) are a type of cryptocurrency exchange that operates on a decentralized peer-to-peer (P2P) network. Unlike centralized exchanges (e.g. Coinbase, Binance), which are run by a single entity, DEXs operate on a decentralized blockchain network, such as Ethereum, and allow users to trade cryptocurrencies directly with each other, without the need for intermediaries or a central authority.
The more decentralized an exchange is, the more it will allow any user anywhere to connect and trade directly without the need for any intermediary. We call these Decentralised Exchanges or “DEXs” for short, two examples being THORChain and Sushiswap. DEXs, as stated, operate trustlessly and are permissionless, as opposed to a centralized exchange or CEX.
In a DEX, users maintain control over their funds by holding their private keys, and trades are executed using smart contracts. This eliminates the need for a central authority to hold user funds, reducing the risk of hacking or theft. In addition, DEXs provide greater privacy and anonymity for users, as they do not require users to provide personal information or complete KYC (know your customer) procedures.
Some tokens can only be purchased on a DEX like Uniswap or Sushiswap. In that case, a peer-to-peer trade is the only option, so one must find the right DEX for their interests. Every blockchain network, as it matures, will see multiple DEX services, interfaces, and ways to access these trading platforms. Cross-chain DEXs such as THORChain and Osmosis allow assets from different networks to be swapped natively.