DEX Exchange: What It Is and How to Get Started

DEX Exchange: What It Is and How to Get Started

Decentralization is one of the key principles of the crypto industry, so it's no surprise that the popularity of De-Fi and decentralized exchanges (DEX) has been growing for several years. In this article, Trustee specialists will explain what decentralized cryptocurrency exchanges are, how they are regulated, how they differ from centralized exchanges, and how to start using them. Read on for an overview of their advantages and disadvantages, predicted future prospects, and a ranking of the best decentralized exchanges!

What Is a DEX Exchange?

A decentralized exchange (DEX) is a platform for exchanging digital assets that operates based on decentralization—without central governance by an individual or group of people and without a central node or server.

Essentially, a DEX is a blockchain-based platform that facilitates peer-to-peer (P2P) transactions without intermediaries. It does not store user personal data or their financial information on its servers. Users exchange assets through smart contracts and algorithms based on a distributed ledger.

Many exchanges that call themselves decentralized actually store trading data and user order information on their servers, even though they do not hold private keys. The first efforts to create cryptocurrency DEXs emerged in 2014, but significant development only started in 2018.

Regulation of DEXs

Governments have mixed opinions on financial-technology platforms that are governed solely by their user communities, with no central entity accountable for transactions.

As with cryptocurrency in general, authorities in different countries have not reached a consensus. For example, Singapore’s regulator seeks to develop a regulatory framework specifically for DEXs, while the U.S. attempts to apply existing laws.

In most countries, decentralized exchanges remain unregulated as they are not tied to any legal entities. This means that in case of violations, there is no single entity to hold accountable or to send official requests.

How DEXs Work

Orders are executed on the blockchain using smart contracts. User funds remain on their own devices. While decentralized exchanges operate on various blockchains, the most popular ones use Tron, Ethereum, and Binance Chain.

A DEX serves as a marketplace for matching buy and sell orders. Once orders are matched, trading occurs directly between users.

Pros and Cons of DEXs

Advantages	Disadvantages
No central governing authority; operates automatically or with community governance	No official customer support
Completely anonymous transactions	Difficulties converting fiat currencies
Secure data storage	Complex user interface, challenging for beginners
No need for user identification (KYC/AML)	No data recovery options for users
Fair pricing with no market manipulation	Trading limited to tokens that support smart contracts
Regulators cannot freeze accounts	Smaller liquidity pools compared to centralized exchanges
Transparent transactions	Limited functionality (e.g., no margin trading, stop-loss orders, leverage)
No counterparty risks	Potential smart contract vulnerabilities
Ability to trade tokens not listed on centralized exchanges	Slower trading speeds compared to centralized exchanges
No single point of failure

Differences Between Decentralized and Centralized Exchanges

The main difference is the absence of a central governing entity that controls user data and exchange operations. In DEXs, governance is automated or semi-automated, with community involvement in decision-making.

DEXs are more suitable for experienced traders. Users manage their own funds and trades without access to customer support or fund recovery options. While this ensures full control, it also places sole responsibility on the user. However, all transactions are fully transparent, as all activity can be tracked on the blockchain.

Centralized exchanges (CEXs) have tools for market manipulation and can freeze user accounts at any time due to "suspicious" activity. Additionally, since CEXs have legal addresses, government authorities in some jurisdictions can seize their assets, confiscate servers, and freeze user accounts. These actions are not possible on DEXs because their servers are distributed across various locations, placing them in a legal gray area.

Examples of Decentralized Exchanges

The number of DEX platforms has significantly increased in recent years. Below are some of the most popular and highly rated decentralized cryptocurrency exchanges.

• JustSwap – A decentralized trading protocol on TRON for automated liquidity provision.
• IDEX – A real-time DEX for ERC-20 tokens on Ethereum with hardware wallet support and the ability to cancel orders without fees.
• Waves DEX – A cross-platform exchange built on the Waves blockchain that allows trading token pairs without needing an intermediary currency.
• PancakeSwap – A DEX on Binance Smart Chain (BSC) that supports BEP-20 token trading, liquidity rewards, and features NFT collections and lotteries.
• Bancor Network – A decentralized exchange with automatic pricing and no price difference between buy and sell orders.
• Binance DEX – A decentralized counterpart to Binance’s main exchange.
• Uniswap – A decentralized exchange on Ethereum featuring an automated liquidity protocol.

Decentralized exchanges are a cornerstone of the DeFi movement, offering enhanced security, transparency, and user control. However, they also present usability challenges and require users to take full responsibility for their funds. Understanding how DEXs operate and their key differences from centralized exchanges is essential for making informed decisions in crypto trading.