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Analyzing Market
Glossary

DEX

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.

DEX: Frequently Asked Questions

How does a decentralized exchange actually work?
Most DEXs use an automated market maker model. Instead of matching individual buyers and sellers on an order book, 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 a smart contract swaps one token for another and updates the pool on-chain.
What are the advantages of using a DEX over a centralized exchange?
A DEX is non-custodial and permissionless, so you keep control of your assets the whole time rather than handing them to a company. You can also trade tokens that no centralized venue lists. The cost is that you pay gas fees, take on smart-contract risk, and may face slippage when a pool's liquidity is shallow.
What is slippage on a DEX?
Slippage is the difference between the price you expect and the price you actually get. On a DEX, trades are priced against a liquidity pool, so a large trade in a pool with shallow liquidity moves the price as it executes, giving you a worse rate. Thinner pools mean more slippage, which is why pool depth matters.
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