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dex or decentralized exchange meaning

What is a DEX/decentralized exchange?

DEX stands for decentralized exchange. These are peer-to-peer trading platforms where a user can buy, sell and exchange cryptocurrency. Because they’re decentralized, users can directly sell or purchase crypto from any other user using their own wallets without depending on a third party.

DEXs usually have a utility or governance token that has benefits like governance rights, liquidity, and staking rewards; only the token holders can utilize these benefits. They run on different blockchain ecosystems and their working is almost the same as a centralized exchange except users have full ownership and control over their funds and private keys.

Moreover, decentralized exchanges rely on self-executable smart contracts to allow traders to execute orders and transfer funds. This happens without intermediaries otherwise present at centralized exchanges.

With the rise of DeFi, the adoption of decentralized exchanges has been increasing. In fact, they have experienced exponential growth in the last 3 years and recorded trillions of dollars in trading volume.

Best decentralized exchanges and their tokens

  • Uniswap – an automated liquidity protocol built on the Ethereum Blockchain. Users can trade here without the need for central authority. Moreover users can launch ERC-20 tokens on Uniswap as well. It has a token named UNI which is used to govern Uniswap.
  • Pancake – a DEX powered by the Automated Market Maker (AMM) model built on the BNB Smart Chain. Users can trade without third party interference, swap BEP-20 tokens, and also earn different rewards by staking tokens in liquidity pools. Its token, CAKE, is used to govern the Pancake ecosystem.
  • Stellar – an open-source payment protocol serving as a DEX built-in order book. It allows users to move or store any form of money at a low price. XLM is Stellar’s native coin and acts as an intermediary currency during transactions.

DEXs give users freedom and ownership and are playing an important role in the growth of DeFi.