Glossary
Decentralized exchange (DEX)
A decentralized exchange (DEX) is a trading service run by smart contracts on a blockchain, where users swap tokens directly from their own wallets without handing custody of their funds to a company.
Also called DEX, Decentralised exchange, AMM (automated market maker), On-chain exchange, Swap
See also
A decentralized exchange (DEX) lets you trade crypto directly from your own wallet. There is no account to open and no company holding your coins: the rules of the exchange are written in smart contracts on a blockchain, and each trade settles on-chain. Uniswap on Ethereum, Raydium on Solana and PancakeSwap on BNB Chain are well-known examples.
How a decentralized exchange works
Most DEXs are automated market makers (AMMs). Instead of an order book, they use liquidity pools: smart contracts holding two tokens, supplied by users called liquidity providers. A formula sets the price. In Uniswap’s classic design, the product of the two reserves must stay constant (x × y = k), so buying one token makes it more expensive. Traders pay a fee that goes to the liquidity providers.
Other DEXs use on-chain order books, especially for derivatives, and aggregators route a trade across several DEXs to find the best price.
A concrete example
Ali holds $300 of USDC in his wallet and wants ETH. He opens a DEX interface, connects his wallet, enters the amount and sees an estimated output and a maximum slippage. He signs two transactions: one approving the contract to use his USDC, one for the swap. Seconds later, ETH lands in his wallet. He paid the pool fee plus the network’s gas fee.
Why it matters for users
- Self-custody: funds stay in your wallet until the moment of the trade.
- Open access: anyone with a wallet can trade, without identity checks at protocol level.
- New tokens often appear on DEXs long before a centralized exchange lists them.
Risks and limits
- Smart contract bugs and exploits can drain pools.
- Scam tokens: anyone can create a token with a famous name; check the contract address from an official source.
- Slippage and price impact on large trades or thin pools, and front-running bots.
- Network fees can exceed the value of small trades on busy chains.
- Malicious approvals and fake DEX websites target users’ wallets.
The interface you use may be run by a company and subject to local rules, even if the contracts are not. Read our guide DeFi explained before your first swap.