Decentralised Exchange [DEX]

Ok you might be wondering what is DEX or Decentralised Exchange is now ❗️

What is Decentralised Exchange?

A decentralized exchange (or DEX) is a peer-to-peer marketplace where transactions occur directly between crypto traders. DEXs fulfill one of crypto’s core possibilities: fostering financial transactions that aren’t officiated by banks, brokers, or any other intermediary.

Many popular DEXs, like Uniswap and Sushiwap, run on the Ethereum blockchain.

How does Decentralised Exchanges Work?

Unlike centralized exchanges like Coinbase, DEXs don’t allow for exchanges between fiat and crypto — instead, they exclusively trade cryptocurrency tokens for other cryptocurrency tokens. Via a centralized exchange (or CEX), you can trade fiat for crypto (and vice versa) or crypto-crypto pairs — say some of your bitcoin for ETH.

You can also often make more advanced moves, like margin trades or setting limit orders. But all of these transactions are handled by the exchange itself via an “order book” that establishes the price for a particular cryptocurrency based on current buy and sell orders — the same method used by stock exchanges like Nasdaq. 

Decentralized exchanges, on the other hand, are simply a set of smart contracts. They establish the prices of various cryptocurrencies against each algorithmically and use “liquidity pools” — in which investors lock funds in exchange for interest-like rewards — to facilitate trades. 

That's it for the day, Web3Shala Signing Off ✌🏻

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