A decentralized exchange (DEX) is where investors can buy or sell cryptocurrencies without the need to go through a company. It works on the blockchain and uses smart contracts, which are programs that make these trades happen automatically. Uniswap, PancakeSwap, and SushiSwap are some well-known DEXs.
Decentralized exchanges differ from centralized exchanges (CEX) like Binance or Coinbase, as they manage your trades for you while keeping your money in their accounts. But a DEX is quite the opposite; it lets you control your own funds because it’s non-custodial, and all trades happen directly on the blockchain.
When you trade on a DEX, it gives you more privacy, as you don’t have to share personal information or go through KYC. The saying “not your keys, not your crypto” is most true for DEXs because the exchange is less likely to freeze or lose your money. You’ll often find newer or more specialized tokens on a DEX that aren’t listed on big centralized exchanges. And because transactions on the blockchain are transparent, it’s harder for hackers to tamper with the system or run off with your funds.
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On the other hand, using a DEX can be challenging because you have to take care of your own wallets and pay for gas fees, among other things. If the network is busy, trades might take longer and cost more. Some tokens have low liquidity, which can cause prices to fluctuate. The biggest complaint people have is that if something goes wrong, there isn’t any customer support to help you, and so you’re on your own.