A decentralized exchange (DEX) is a peer-to-peer (P2P) marketplace that connects cryptocurrency buyers and sellers. In contrast to centralized exchanges (CEXs), decentralized platforms are non-custodial, meaning a user remains in control of their private keys when transacting on a DEX platform. In the absence of a central authority, DEXs employ smart contracts that self-execute under set conditions and record each transaction to the blockchain. These trustless, secure transactions represent an accelerating segment of the digital asset market, and are pioneering new financial products.
Although centralized exchanges still dominate crypto markets and serve the needs of everyday crypto traders and investors, decentralized alternatives provide an interesting alternative. Through on-chain smart contracts, DEXs provide a trustless method of connecting buyers and sellers, and are offering new models of equitable involvement and governance for stakeholders. However, these platforms are still in their infancy, and further refinement of the user experience, development of the infrastructure, improved scaling mechanisms, and increasing connections to centralized crypto and legacy financial institutions will be necessary to ensure future adoption.