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Crypto Terms:  Letter D

What is Decentralized Exchange (DEX)?

Decentralized Exchange (DEX) - a peer-to-peer cryptocurrency exchange service that conducts trading without an intermediary.
2 minutes

Let's find out Decentralized Exchange (DEX) meaning, definition in crypto, what is Decentralized Exchange (DEX), and all other detailed facts.

Decentralized currency exchange (DEX) is a cryptocurrency exchange platform that offers near-complete anonymity for traders. It conducts its services without an intermediary, meaning that the assets flow directly between the traders.

DEXs were created as an alternative to centralized exchanges (CEXs). The most popular crypto exchange platforms in the world, like Binance and Coinbase, are centralized. They take orders from traders who want to purchase or sell their assets and match them with prospective sellers and buyers. CEXs function similarly to securities exchanges.

However, centralized cryptocurrency exchange platforms have some disadvantages that have received criticism from crypto traders. CEX platforms are privately owned, which means that an intermediary is involved in all transaction operations. Their services are custodial, meaning that the asset used in a transaction is held by the platform.

Centralized platforms also collect customer data and may be required to comply with regulations such as Know Your Customer (KYC). The concept of a currency exchange run by a central authority goes against the principles of decentralization and complete transaction anonymity which are the core ideas of cryptocurrency.

Decentralized exchange platforms allow users to perform crypto transactions completely anonymously. Since DEXs are still relatively new, they see far lower trading volumes than their centralized counterparts. DEXs that use formulas to set prices, instead of order books, are called "Automated Market Makers", or AMMs.

Decentralized platforms create regulatory issues since they do not comply with KYC or similar policies. Furthermore, the use of decentralized exchanges can lead to traders getting scammed, as there is no way to confirm the identities of the parties involved.

A well-known DEX "scam" is the so-called "sandwich attack". It takes place when a token price spikes before purchase and drops immediately after. In order to avoid it, a user can divide their trades into smaller ones.