DEX refers to a decentralized exchange platform, which is a peer-to-peer marketplace for doing crypto exchanges. The core function of DEX is to eliminate a central entity such as brokers or banks. As such, they are the opposite of centralized exchange platforms (CEX) that are very popular in the crypto world.
According to experts, DEXs are likely to dominate as crypto investors look for affordable platforms where all members contribute to decision-making. They are also becoming popular due to the growing use of decentralized finance (DeFi) to invest and participate in crypto development projects.
For newbies, this might sound like a hard topic to comprehend, but when we break it down, it will be very clear.
Understanding How DEX Works
DEX promotes the exchange of crypto coins between people without a middle entity, hence, they do not allow the use of fiat currency like CEX. There is no creation of limits and margins because there is no order book.
Just so you understand, these are smart contracts developed on blockchains that are automated through the use of algorithms to set the prices of one crypto coin against each other. Peers on the same platform can then exchange crypto at a low fee that is used to run the project and pay those who provide liquidity pools.
Why Peers Are Using DEX
This new peer-to-peer crypto exchange approach is incredible and has numerous benefits. And before we look at them, it is prudent that you visit the homepage of a reliable DEX to see how it works.
- To utilize a developing crypto tech evolution – Peer-to-peer lending has led to the development of DEX; it uses the same concept. As mentioned, this concept uses automated algorithms to do things and eliminate the middle parties, which are affordable and for peers. Out of the need to contribute to such technology, more people are joining the DEX and DeFi platforms and contributing to their success.
- No broker fee – If you are tired of paying broker fees subjected to CEX, you are welcome to try DEX. As mentioned, these platforms have eliminated central entities such as crypto exchange companies. They only charge the blockchain fee used to manage contracts and pay interest to the liquidity providers.
- Variety of coins – If you are planning to go a crypto trial haul, it is best you try the DEX and DeFi platforms because they offer a wide variety of coins from the popular ones to the emerging ones. They allow the exchange of major coins and less popular crypto tokens.
Risks of Using DEX
Although DEX platforms are highly praised for their success, they are as vulnerable and volatile as any other crypto platform. They rely on the security of the blockchain and the smart contract designed to power it. Additionally, users might be tempted to try riskier coins that are yet to be tested for vulnerability. But with research, you can know all the good coins to try.
DEXs are good platforms worth trying whether you are new to cryptocurrency or a seasoned investor. They have a brighter future, especially when compared to the CEX.
Krishna Murthy is the senior publisher at Finance XOD. He is not only the senior publisher but also the owner of Tricky Finance. Krishna Murthy was one of the brilliant students during his college days. He completed his education in MBA (Master of Business Administration), and he is currently managing the all workload for sharing the best banking information over the internet. The main purpose of starting Tricky Finance is to provide all the precious information related to businesses and the banks to his readers.