Decentralized Exchanges (DEX)
A decentralized exchange (DEX) is an application that lets you swap cryptocurrencies without intermediaries. There's no company holding your funds or able to block your transactions.
How do they work?
Unlike a CEX where the company handles the exchange, on a DEX:
- You connect your wallet directly
- The exchange happens through smart contracts
- You never hand over custody of your funds
Liquidity pools
DEXs use liquidity pools instead of a traditional order book.
What is a liquidity pool?
A pool is a contract that holds two tokens. For example, an ETH/USDC pool contains:
- A certain amount of ETH
- A certain amount of USDC
When you want to swap ETH for USDC, you deposit ETH into the pool and withdraw USDC. The price is calculated automatically based on the ratio of tokens in the pool.
Main DEXs
| DEX | Blockchain | Specialty |
|---|---|---|
| Uniswap | Ethereum, Arbitrum, etc. | The biggest, the market reference |
| Jupiter | Solana | Aggregator that finds the best prices |
| PancakeSwap | BNB Chain | Cheaper alternative to Uniswap |
| Hyperliquid | Hyperliquid L1 | Perpetuals trading, spot |
| Raydium | Solana | Trading and liquidity on Solana |
Advantages of DEXs
- ✅ No custody: Your funds always stay in your wallet
- ✅ No KYC: nobody asks you for an ID or a selfie, because there is no company that has to know who you are
- ✅ No gatekeeper: no company decides whether you get to trade — with what limits
- ✅ More tokens: Anyone can create a pool
- ✅ Transparency: All the code is public and verifiable
Disadvantages and risks
1. No customer support
If you make a mistake, there's no one to help you. Sent to the wrong address? You lost the funds.
2. Fraudulent tokens
Anyone can create a token and a pool. Many are scams:
Watch out for:
- Honeypots: Tokens you can buy but not sell
- Rug pulls: The creator pulls all the liquidity out
- Fake tokens: Names similar to well-known tokens
3. Slippage
Slippage is the difference between the expected price and the actual execution price. In small pools, it can be significant.
Expected: 1 ETH = 2,000 USDC
Received: 1 ETH = 1,950 USDC
Slippage: 2.5%4. Gas fees
Every transaction on a DEX requires gas. On Ethereum during congestion, a swap can cost $10-50+ in gas.
5. MEV and front-running
Bots can see your pending transaction and execute ahead of you to profit. This can worsen your price.
CEX vs DEX
The differences —who holds your money, who you're buying from, who decides what gets listed, and exactly what happens when you hit "Buy"— are explained step by step on their own page:
→ A trade on Binance vs. a trade on Uniswap
And if what you want to know is why a token is here and not on Binance yet: → Who buys early, and who they sell to
How to do a swap
The full procedure, with what each screen shows and where the danger is:
→ Your first swap, step by step
Summary
- DEXs let you swap without intermediaries
- You use your own wallet, you keep custody
- No KYC and no gatekeeper
- Higher risk of fraudulent tokens and user error
- Ideal once you understand the risks
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