What is a DEX?
A decentralized exchange (DEX) is a way to trade directly on the . There is no company in the middle, and no one holds your funds for you.
A centralized exchange (CEX) works the opposite way. You open an account, pass identity checks, and the exchange controls your coins until you withdraw them.
DEXs are the most common kind of .
A DEX removes the middleman, not the law. Some regions block DEXs or certain tokens. Check your local laws before you use one.
Custody, control, and trust
On a DEX, you hold the to the funds you are trading. On a CEX, the exchange holds them. If a CEX freezes withdrawals, your coins stay there until they decide otherwise.
When you trade on a DEX, your wallet interacts with the blockchain itself. After the trade, you hold the keys to the assets right away, because they are sent directly to your wallet.
On a CEX, your coins sit with everyone else’s. You only hold a claim, not the coins. If the exchange fails or runs short on reserves, getting your funds back can be slow, difficult, or partial.
DEXs do not handle fiat, like dollars or euros. You need crypto first. Most users buy crypto on a CEX (with KYC) or through a fiat on-ramp, then move it to their wallet.
Here’s a simple comparison:
| DEX | CEX | |
|---|---|---|
| Who holds the keys | You | The exchange |
| How trades are handled | Smart contracts | Centralized engine |
| Transparency | Fully on-chain | Varies |
| Failure risk | Contract bugs | Insolvency or hacks |
| KYC rules | None | Required |
| Recovery help | None | Possible, often slow |
Because anyone can make a DEX, you need to be very careful when interacting with them. Always double-check the link, and never connect your wallet if something feels off in any way. Fake DEXs and malicious transactions can drain your wallet.
How decentralized exchanges work
A DEX is a set of that hold pools of assets to create trading pairs.
For example, a DEX could create a trading pair between SOL and USDC by locking equal values of both tokens in a shared liquidity pool.
Traders then swap between these assets, depositing to the liquidity pool of one asset and withdrawing from the liquidity pool of the other asset.
Its also possible to earn a return by contributing assets to a liquidity pool. Liquidity providers earn a share of trading fees and potential yield in return for risking their assets in the pool.
However, large price swings between the pooled tokens can lead to losses due to the way liquidity pools maintain a 50/50 balance between assets. This effect is known as impermanent loss.
Always check the DEX URL. Fake DEX pages can trick you into signing malicious transactions.
Why a use DEX?
Full control of funds
You keep your keys. Your Trezor signs each transaction. No one else can move your coins unless you hand over your wallet backup or approve a bad contract.
No KYC
DEXs do not ask for identity documents. You connect your wallet and trade.
Using a DEX does not make you anonymous because blockchain transactions are public. For more information, please read Is crypto anonymous?.
Access to more assets
CEXs list only a small number of assets. On a DEX, you can trade any token on that chain, as long as someone has added liquidity.
This is why most new tokens first appear on DEXs. But many of these tokens lose value fast or are outright scams.
Decentralized exchanges (DEXs) make it easy to buy many types of tokens, including scam or misleading tokens. Use caution and make sure you understand the risks before making a transaction.
More transparency
A DEX holds assets in public smart contracts. You can see the balances at any time.
Because it’s non-custodial, a DEX cannot disappear with your funds. But you must understand token approvals, and revoke them after each trade. A bad approval can drain your wallet.
Risks of using a DEX
DEXs give you control. But they also give you responsibility.
Scams
You can lose all your assets if you:
- connect to a fake DEX
- approve a malicious contract
- buy scam tokens
Move slowly. Stick to known platforms. A CEX may be safer if you’re not confident in what you’re doing.
Token approvals (EVM chains)
EVM based blockchains like Ethereum & BNB Smart Chain require token approvals before trading.
Approvals let a smart contract access your tokens.
If the contract is hacked later, your approved tokens can be stolen.
Solana works differently and does not have this risk.
Always revoke approvals after you trade.
Unlimited approvals are dangerous. Revoke them after every trade.
Fees and slippage
Prices on a DEX can change fast. If a pool is small or busy, you may pay far more than expected.
Always check gas fees and your slippage setting before confirming a trade.