What Is A Decentralized Exchange (DEX) And How Does It Work?
A decentralized exchange (Dex) is a type of online exchange that operates on a blockchain network, rather than on a central authority. This means that the Dex are decentralized, which means that there is no single entity that controls them and users have complete control over their accounts and transactions.
Here’s how decentralized exchange works:
- User creation : a user creates an account on the platform of their choice.
- Deposit funds : User deposits funds in their account, which can be in any cryptocurrency or type of activity supported by the Dex.
- corresponding couples : a liquidity pool is created, in which multiple users deposit and withdraw funds to combine mutual transactions.
- Orders book : the exchange maintains an orders book that lists all the orders available for each activity. When a user plays an order to buy or sell a resource, their request is combined with the request for the correspondence of another user on the book of orders.
- Financing markets : the liquidity pool provides financing for users to exchange activities at favorable prices. When a trader wants to buy an activity, the liquidity supplier provides funds from the pool until the trade is resolved.
- Exchange commissions
: the exchange is the commissions from the operations, which are distributed among all the parties involved in the transaction.
Dexs offers several advantages compared to traditional exchanges:
- lower costs : Dex often have lower commissions than centralized exchanges, as they do not need to pay for intermediaries or maintain a central authority.
- higher liquidity : Dex can manage more operations per second due to their decentralized nature and the use of more liquidity suppliers.
- Increase in transparency : Dexs generally provide data on the book of orders in real time, making it easier for users to understand market conditions.
Examples of popular decentralized exchanges include:
- Uniswap (V2) and
Uniswap (V3) : two of the best known Dexs that allow users to exchange resources directly.
- SUSHISWAP : a popular dex that supports a wide range of cryptocurrencies, including Ethereum, Binance Coin and more.
- Dao curve
: a decentralized exchange (Dex) built on the blockchain Ethereum, known for its high liquidity and low taxes.
When choosing a decentralized exchange, consider factors such as:
- Liquidity : Make sure the Dex has enough liquidity to support operations.
- Commissions : Understanding the commissions associated with trading on the platform.
- Security : check the safety measures in place to protect users’ resources.
- User experience : Search for an intuitive interface and rapid execution speed.
By understanding how decentralized exchanges work, you can make informed decisions on which Dex is most suitable for your trading needs.
