What is a Decentralized Exchange?

A decentralized exchange is a cryptocurrency exchange where you can trade cryptocurrencies from your own wallet without trusting third parties. Decentralized exchanges are powered by smart contracts which allow users to trade cryptocurrencies directly with other users or through liquidity pools.

Decentralized exchanges are non-custodial exchanges and based on smart contracts, so there is no need to trust a third party with your funds. You will have full control of your cryptocurrencies while trading on decentralized exchanges.

There are various types of decentralized exchanges you can use to trade cryptocurrencies. The most popular ones are those that use an AMM (automated market maker) model such as Uniswap and SushiSwap. Some exchanges, which are called DEX aggregators, source liquidity from various other decentralized exchanges to offer users better rates and less slippage. 1inch and Matcha are currently the most popular DEX aggregators in the market. Among these decentralized exchanges, you can also find ones such as dYdX that more resembles to centralized exchanges with its order book.

While decentralized exchanges are known with decentralization of custody, the most common property of decentralization, they are not fully decentralized. Decentralized exchanges do have centralized elements in their systems such as centralized order matching, KYC, etc. Some decentralized exchanges focus on such technical and non-technical centralized elements in their DEXes that they want to get rid of and are on the way to becoming fully decentralized exchanges.