DEX exchanges: a complete breakdown of how decentralized trading works

Is it worth understanding DEX exchanges?

If you have dived into the world of crypto, you have probably heard about decentralized exchanges. But what do they represent? And how do they differ from regular trading platforms?

Cryptocurrency exchanges have existed for a long time – they connect buyers and sellers, provide liquidity, and help establish a fair price for assets. For a long time, centralized players dominated this market. However, today, as technologies are rapidly developing, more and more tools for decentralized trading are emerging – ones where you don't need intermediaries.

What is a DEX exchange really?

A decentralized exchange is a cryptocurrency platform where you can trade assets directly with one another, without an intermediary in the form of a company or organization.

On a regular centralized exchange (CEX), you trust your funds to the company. When you deposit cryptocurrency, you lose control over the private keys. Just like your money is stored in a bank. Transactions on CEX are not recorded on the blockchain – everything happens in the exchange's database.

With DEX, everything is different. You don't need to trust anyone. Instead, everything is regulated by smart contracts – programs that automatically execute agreements based on predetermined rules. When you trade on DEX exchanges, you interact with other users through the blockchain, keeping your private keys with you.

CEX vs DEX: how do they work differently?

Centralized exchange (CEX): convenience for the price of trust

On CEX, you deposit funds in the traditional way – via bank transfer, credit card, or cryptocurrency. The exchange manages your capital. This means that when you want to trade, everything happens instantly – there is no waiting for network confirmation.

The process is simple: you log into your account, execute a transaction, and the system automatically updates your balance. This approach seems convenient, but has a blind spot: you depend on the reliability of the company itself. If the team runs off with your funds, if the server is hacked, or when a technical error occurs – you could lose everything.

Decentralized DEX: control instead of convenience

On DEX exchanges, there is no central authority. Instead of depositing funds, you simply connect your wallet (MetaMask, Trust Wallet, and others) to the platform. All transactions are recorded on the blockchain, and no one can freeze your account or confiscate your assets.

However, this leads to new complexities. You need to manage your wallet yourself, keep the seed phrase secure, and understand how gas fees work. If you lose access to the private key, the assets are irretrievably lost.

How do people actually trade on DEX exchanges?

There are three main models on which decentralized exchanges are built.

On-chain order book: maximum transparency, minimum speed

On some DEX, each order is recorded directly on the blockchain. This means absolute transparency – anyone can verify what happened. However, it is very slow and expensive. You will have to wait for your order to be included in a block, and that will take time. Additionally, for each operation ( of placing, modifying, or canceling an order ), you pay a fee.

Off-chain order book: a compromise solution, but with risks

Some DEXs collect orders off-chain and then periodically anchor them on the blockchain. This is faster but creates new problems: if the platform is controlled by an irresponsible organization, it can manipulate orders, front-run transactions for other users, or distort data.

Automated market makers (AMM): the most common approach

The most advanced solution is AMM. Instead of searching for buyers and sellers for each order, AMM uses liquidity pools.

Here’s how it works: users deposit a pair of tokens into the pool (, for example, USDT and ETH). In return, they earn fees from all trades that occur through this pair. When you want to trade, the price is set by a mathematical formula, not by people. The most famous example is Uniswap, which uses the formula x * y = k, where x and y are the volumes of the two tokens in the pool.

The advantages of AMM are obvious: you can trade at any time without the need to wait for a counterparty. The system operates 24/7.

Which DEX exchanges are the most popular?

Uniswap – the largest AMM by trading volume. It operates on several blockchains, has a simple interface, and is very popular among both professionals and newcomers.

SushiSwap initially emerged as a fork of Uniswap but developed its own model with a governance system (DAO) and rewards for liquidity providers. This attracted many users who wanted to earn additional income on their assets.

PancakeSwap – AMM built on BNB Smart Chain. It is known for its low fees, making it accessible for users who cannot afford expensive transactions on Ethereum.

Why use DEX exchanges at all?

You remain the owner of your funds

On the DEX, there is no need to deposit funds into the exchange. You connect your wallet, trade, and that's it. No one will freeze your account, and no one will have access to your assets. This is a fundamental advantage.

Free access for everyone

DEX exchanges are available for anyone with a wallet and internet. There are no forms, verification, or regional restrictions. This is especially important for people in countries with strict financial limitations.

You can trade anything you want.

Low-cap tokens are not listed on centralized exchanges. On DEX, you can trade any asset if there is a liquidity pool for it. This means that early investors have a chance to buy tokens before they hit major platforms.

Full transparency

Every transaction is recorded on the blockchain. Anyone can verify it. This makes the system highly resistant to manipulation.

What problems await users of DEX?

Risks of smart contracts

DEX depends on the quality of the code. If there is a mistake or loophole in the smart contract, hackers can exploit it and steal millions. This happens regularly, especially when new DEXs emerge.

Not always enough liquidity

Smaller exchanges often suffer from low liquidity. If you try to sell a large amount of a token that has little demand, you will have to sell at a significantly worse price. This phenomenon is called slippage.

Learning curve for beginners

DEX is not for people who are used to just pressing a button. You need to understand how wallets, private keys, gas fees, and blockchain transactions work. One mistake and you will lose everything.

Front-running and manipulation

On a public blockchain, everyone can see your order before it is executed. If someone pays a higher fee, their transaction will be processed first, and they will be able to take the advantageous position ahead of you.

Commissions can be expensive

On an overloaded network ( like Ethereum during peak activity, gas fees can make a small transaction unprofitable.

What awaits DEX exchange in the future?

Second level solutions )L2( – such as rollups – already allow for faster and cheaper trading. You will be able to execute transactions for pennies instead of dollars.

Management through decentralized autonomous organizations )DAO( is gaining momentum. Many DEXs issue governance tokens that allow users to vote on the development of the platform. This gives the community real power.

Cross-chain trading is yet another frontier. Soon you will be able to trade assets between different blockchains without intermediary platforms.

Conclusions: DEX exchanges are not for everyone, but they are here to stay

DEX exchanges are changing the approach to cryptocurrency trading. They give control back to users, provide global access, and avoid censorship. However, they are also more complex, more expensive to use, and come with real technical risks.

If you are already knowledgeable about crypto and ready to take responsibility for your assets – DEX exchanges – this is the way. If you are a beginner – start with a centralized exchange, learn the basics, and then move on to DEX.

The most important thing: always do your homework, keep your private keys secure, and remember that there are no guarantees in crypto.