Definition
A DEX, short for decentralized exchange, is a type of cryptocurrency trading venue that operates on a blockchain without a central company holding user funds or controlling trades. It relies on smart contracts to automatically match and settle trades between participants, allowing them to retain control of their own wallets and private keys. Pricing and trade execution are typically governed by transparent on-chain rules rather than by a centralized order book managed by an intermediary.
Many DEXs use liquidity provided by users who deposit tokens into a liquidity pool, which then serves as the counterparty for trades. Well-known DeFi protocols such as Curve and SushiSwap are examples of DEX platforms that specialize in different types of assets or fee structures. In contrast to centralized exchanges, a DEX is designed as a permissionless protocol that exists as code on a blockchain, forming a foundational concept within decentralized finance.
Context and Usage
Within DeFi, a DEX often interacts closely with other protocols and concepts such as liquidity pools and staking. Users may supply tokens to a DEX’s liquidity pool to facilitate trading and, in some designs, receive rewards that resemble staking incentives. Protocols like Aave, while focused on lending and borrowing rather than trading, are frequently used alongside DEXs as part of broader on-chain financial strategies.
DEXs can be specialized for particular asset types or trading mechanisms, as seen with Curve’s focus on stable assets and SushiSwap’s broader token support and incentive structures. Because a DEX is implemented as a set of smart contracts, its rules for fees, token swaps, and liquidity management are encoded on-chain and can be inspected by anyone. This makes the DEX concept central to the idea of open, programmable financial infrastructure on public blockchains.