A DEX (Decentralized Exchange) is a system where you can exchange cryptocurrencies with each other without having to rely on a central governing body. DEXs provide a safe zone for users to trade directly with each other using Smart Contracts to enhance privacy, security, and control over assets, and to reduce being reliant on conventional exchanges and middlemen.
DEXs are decentralized, and that is their strength because it means that the users always have control over their funds throughout the trading process. Unlike CEXs, DEXs are different as people don’t have to store their assets in an exchange’s wallet, nor does the exchange control the users’ private keys or tokens.
Smart Contracts are crucial for the functioning of DEX because they execute trades, precluding centralization that happens with CEXs in the market with their hacks, breaches, and mismanagement of funds. With these contracts, the trades will go through only when certain conditions are met and the market is free of the need for the use of third-party middlemen. Atomic swaps increase the reliability of transactions by making sure both parties complete the exchange or none of them do, which is essential for other facilities like a token exchange, liquidity, and yield farming.
Other facilities include atomic swaps, which increase the reliability of transactions by making sure both parties complete the exchange or none of them do. Most DEXs have models for users to stake their tokens to pools so that value is exchanged and a cut on transaction fees or governance tokens are earned