"Decentralized exchanges, also known as DEXs, are peer-to-peer marketplaces where cryptocurrency traders make transactions directly without handing over management of their funds to an intermediary or custodian.
These transactions are facilitated through the use of self-executing agreements written in code called smart contract
"Traditionally, trading cryptocurrency
requires the use of a centralized exchange
. CEXs match the orders of someone who wants to buy crypto with someone who wants to sell, and vice versa. They can be thought of as similar to securities exchanges
But there are several perceived disadvantages associated with traditional, centralized exchanges.
These platforms are owned privately. This means that there is a third party with its own motives and priorities — sitting in the middle of every transaction
As a result, these private companies have oversight of those transactions, and collect and hold details on all its customers. This is a direct challenge to one of the cornerstones of cryptocurrency: that there should be the opportunity for anonymity if desired by a user.
Just as importantly, transactions conducted on centralized exchanges are custodial
— meaning the platform holds the asset that is being exchanged.
Decentralized exchanges tackle both of these issues, offering theoretically complete anonymity and, crucially, non-custodial
transactions. This means the actual asset being exchanged never passes through the hands of an intermediary."