What are decentralized exchanges; how to use DEXs

DEXs, or decentralized exchanges, are peer-to-peer marketplaces where cryptocurrency traders can transact without entrusting the management of their funds to an intermediary or custodian. Smart contracts, which are self-executing contracts written in computer code, are used to speed up these transactions, as Cointelegraph reports.

DEXs were developed to eliminate the need for any authority to monitor and approve trades executed within a particular exchange. Cryptocurrency trading can be done peer-to-peer (P2P) on decentralized exchanges. Peer-to-peer refers to a marketplace that connects buyers and sellers of cryptocurrency. Since they are often noncustodial, users retain ownership of their wallet’s private keys. An enhanced encryption method that allows consumers to access their cryptocurrency is known as a private key. After entering their private key to access the DEX, users can immediately view their cryptocurrency balances. For those who value their privacy, they will not be required to give personal information such as names and addresses, the Cointelegraph said.

Automated market makers, for example, helped attract people to the field of decentralized finance (DeFi) and greatly contributed to its growth as innovations that solved liquidity-related problems. Decentralized platforms have grown through DEX aggregators and wallet extensions optimizing token prices, exchange fees, and slippage while providing customers with a better deal.

Leading blockchains that support smart contracts have formed the basis for the development of well-known decentralized exchanges. They are built directly on the blockchain as they are built on layer one protocols. The Ethereum blockchain is the basis of the most well-known DEXs.

Decentralized exchanges charge trading fees on top of transaction fees because they are built on blockchain networks that support smart contracts and allow users to retain custody of their money. To use DEXs, traders essentially communicate with smart contracts on the blockchain.

Automated Market Makers, DEX Order Books, and DEX Aggregators are the three main categories of decentralized exchanges. Through their smart contracts, all allow users to transact directly with each other. Order books identical to those used by centralized exchanges were used by the first decentralized exchanges.

Also read: What is Tokenomics and how it works

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