Glossary

DEX

Plain-language definition Crypto glossary

Key takeaways

A DEX, or decentralized exchange, lets users trade cryptocurrencies directly from their own wallets through smart contracts, with no company holding their funds or matching their trades.
Most DEXs use an automated market maker model that prices trades against pools of tokens supplied by liquidity providers, who earn a share of the fees, rather than matching individual buyers and sellers.
A DEX is non-custodial and permissionless, letting you keep control of your assets and trade tokens no centralized venue lists, with trade-offs of gas fees, smart-contract risk, and slippage in shallow pools.

Definition

A DEX (decentralized exchange) lets users trade cryptocurrencies directly from their own wallets through smart contracts, with no company holding their funds or matching their trades.

How it works

Most DEXs use an automated market maker model. Instead of matching individual buyers and sellers, they price trades against pools of tokens supplied by liquidity providers, who earn a share of the fees. You connect a wallet, approve the trade, and the smart contract swaps one token for another and updates the pool — all on-chain.

Why it matters

A DEX is non-custodial and permissionless: you keep control of your assets and can trade tokens that no centralized venue lists. The trade-offs are paying gas fees, exposure to smart-contract risk, and slippage when a pool’s liquidity is shallow.

Example

Swapping one token for another through a liquidity pool, rather than placing an order on a company-run exchange, is a DEX trade.

FAQ

Frequently asked questions

How is a DEX different from a centralized exchange?

A centralized exchange is run by a company that holds your funds and matches trades on an internal order book, while a DEX lets you trade directly from your own wallet through smart contracts. With a DEX you keep custody of your assets the whole time, but you take on more responsibility for your own security.

What is an automated market maker?

An automated market maker is the model most DEXs use to price trades against pools of tokens instead of matching individual orders. Liquidity providers supply those pools and earn a share of the trading fees in return.

What is slippage on a DEX?

Slippage is the difference between the price you expect and the price you actually get, and it grows when a liquidity pool is shallow relative to your trade size. Along with gas fees and smart-contract risk, slippage is one of the main trade-offs of trading on a DEX.