What are Decentralized Exchanges and How do they Work?

Cryptocurrencies are volatile in their market value. And this can make them both very profitable and very risky to invest in. However, the ‘very profitable’ part is enough to entice thousands of crypto users into investing in these currencies. This buying, selling and trading of crypto assets has to be done on specified platforms called exchanges which are basically of two types: centralized and decentralized.

To understand decentralized exchanges (DEX), it is important to know what centralized exchanges (CEX) first.

Centralized Exchanges (CEX)

Centralized exchanges like Binance allow users to register on their platforms, add funds to their account wallet, and start trading currencies with other users. Users give custody of their funds to the platform and trades are conducted based on the platform’s order book. This means that a user willing to sell an X asset at an Xp price is matched with a user looking to buy that same X asset at that same Xp price.

These exchanges are efficient, user friendly, and are run by trusted companies. But they have some drawbacks too: they are run by centralized companies who store users’ funds in their own databases. This means that those companies, out of malicious intent or because of some legal issue, can freeze their users’ funds and/or direct them to another location. These centralized entities are also prone to hacks that can result in losses amounting to millions.

It was due to some of these concerns, and the rise of DeFi, that the concept of decentralized exchanges was put forward.

What are Decentralized Exchanges (DEX)?

Decentralized exchanges are not run by centralized entities, instead they are collectively run by its users on the blockchain with the help of automated processes called smart contracts. In short, decentralized exchanges are platforms that enable users to exchange cryptocurrencies over automated software applications without the need for a centralized authority watching over the whole process.

See more at this link: https://www.antlia.io/what-are-decentralized-exchanges/