DEX: What’s a Decentralised Crypto Exchange?

Read this Learn Crypto article to go in-depth into 
what are decentralised exchanges, their evolution 
and why they’re a big deal.

In the very early days, getting your hands on cryptocurrency wasn’t as simple or easy to do for regular people since using crypto wallets required a certain level of technical knowledge and computer skills. Most people also had to buy crypto informally or from other people using peer-to-peer methods.

Centralised crypto exchanges led the charge in crypto adoption, making it easier for non-technical users to access and buy or sell cryptocurrency using money from their bank accounts or credit cards. It has to be said that CEXs played an important role in developing public and institutional trust in cryptocurrency as well as their underlying blockchain technologies.

In recent years, payment giants like PayPal have also entered the space, bringing crypto exposure to tens of thousands of existing users.

However, as the blockchain and crypto industry matures, there has been in recent years a push toward building a service infrastructure that better reflects the original ethos of decentralisation.

A major part of this push has been reactionary to significant security events since 2013 involving centralised exchanges like Mt Gox, KuCoin and others. Losses of millions of dollars in stolen, hacked or mismanaged cryptocurrencies, also brought to light the heightened risk of funds when stored on centralised exchanges. In essence, when centralised exchanges are badly managed, then they are either negligent with their security or do not practise enough transparency, allowing them to make bad financial decisions that lead to insolvency.

The term decentralised suggests a greater degree of transparency and accessibility – instead of a company acting as an intermediary, decentralised exchanges or DEXs run on a computer protocol that automatically handles crypto trade transactions, executing trades and swaps according to conditions set by code.

Another key feature of DEXs is that user funds are also not stored on the exchange. Instead, funds still remain under the control of the user on their own crypto wallets.

This is why DEXs are also sometimes called non-custodial exchanges.

In reality, non-custodial is also probably the most technically accurate way to label DEXs since their greatest and most important difference lies in who controls the user funds. CEXs control user funds and DEXs don’t.

Other aspects aren’t necessarily completely decentralised. For example, there are still companies or groups that manage DEXs on their own servers and they are the same people who write the code that operates the DEX. Some DEXs even censor certain users, or are able to unilaterally take over some protocols to fix certain things – just as a CEX would do.

In this way, decentralised exchanges do vary in the lengths they take to decentralise every aspect of crypto exchange.

Nevertheless, modern decentralised exchanges have grown in popularity and are the driving force behind an emerging suite of decentralised finance (DEFI) solutions that allow people to access financial services and products without intermediaries.