A decentralized exchange (DEX) lets users trade cryptocurrencies directly with each other through smart contracts, without a central company controlling order flow or holding customer funds. Users keep their private keys. Assets never leave their wallets unless a trade executes. The smart contracts are open-source and immutable, so anyone can audit how the exchange operates. Most DEXs use an Automated Market Maker (AMM) model instead of traditional order books. Liquidity providers deposit token pairs into pools. Traders swap against these pools, with prices set by a mathematical formula (typically x*y=k). Uniswap, SushiSwap, and Curve are prominent examples. DEXs offer censorship resistance. No company can freeze accounts, block trading pairs, or seize assets. Permissionless token listing means new projects get immediate access to liquidity. The tradeoffs are higher gas costs, potential impermanent loss for liquidity providers, and less user-friendly interfaces compared to centralized exchanges.
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