Decentralized Exchange (DEX)

Understanding Decentralized Exchanges (DEX)

Decentralized exchanges (DEX) serve as an alternative to traditional centralized exchanges (CEX) for cryptocurrency trading. Unlike CEXs, which rely on intermediaries to match buyers and sellers, DEXs eliminate the need for a third party in transactions.

Centralized exchanges have their limitations. They are privately owned, meaning that every transaction involves a middleman. These companies have access to transaction details and customer information, which contradicts the principle of anonymity in cryptocurrency.

Moreover, centralized exchanges are custodial, meaning they hold the assets being exchanged. In contrast, DEXs facilitate non-custodial transactions, ensuring that assets are never held by an intermediary.

Although DEXs are considered a crucial aspect of the future of cryptocurrency, they are still in their early stages. Trading volumes on these platforms are typically low, and the availability of truly decentralized options is limited. Additionally, DEXs may encounter regulatory challenges as authorities question their exemption from oversight due to the absence of asset custody.