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Getting Started with Decentralized Finance: The DEX Breakdown
Decentralized exchanges, or DEXs, are at the heart of modern DeFi. Unlike traditional centralized platforms, DEXs operate without intermediaries—trades happen directly between users through smart contracts.
How do they work? Instead of order books, most DEXs use automated market maker (AMM) models. Liquidity providers deposit token pairs into pools, and traders swap against these pools at algorithmically determined prices. It's a fundamentally different approach that's changed how we think about trading.
Why the shift matters: No KYC requirements, lower counterparty risk, and transparent on-chain mechanics. You maintain custody of your assets throughout the entire transaction. Plus, anyone can become a liquidity provider and earn fees.
The tradeoffs? Slippage on large trades, front-running risks, and less sophisticated order types compared to centralized platforms. But if you value sovereignty and transparency in your trading, DEXs represent a genuine alternative worth exploring.