Decentralized exchanges (DEXes) are cryptocurrency exchanges that do not rely on a third party to hold the customers’ funds. Instead, trades occur directly between users (peer-to-peer) through an automated process.
This type of exchange is also sometimes referred to as a “trustless” system because it removes the need to trust a third party with your funds.
Ethereum is often credited with popularizing the decentralized exchange model. The most prominent DEX built on Ethereum is called IDEX, which launched in 2017.
Other popular examples include EtherDelta, Bancor, and Kyber Network.
One advantage of DEXes is that they are generally much more difficult to hack than centralized exchanges. This is because there is no central point of failure for attackers to Target.
Additionally, DEXes often offer more privacy than their centralized counterparts as they do not require Know-Your-Customer (KYC) compliance.
Another advantage of DEXes is that they are often much faster and cheaper to use than centralized exchanges. This is because there are no intermediaries involved in the process and all transactions are executed on the blockchain itself.
The main disadvantage of DEXes is that they typically have much lower liquidity than centralized exchanges. This is because there are fewer users trading on these platforms and the order books are often thinner as a result.
This can make it difficult to find buyers or sellers for certain assets, especially less popular ones.
Despite these challenges, decentralized exchanges are growing in popularity as they offer a number of advantages over their centralized counterparts. In the coming years, it is likely that we will see even more growth in this space as users seek out platforms that offer greater security, privacy, and speed.