What is a decentralized exchange?

A decentralized exchange (DEX) is best defined as a marketplace that facilitates peer-to-peer trading without intermediaries. This means that users can trade directly with one another, utilizing blockchain technology to execute transactions in a secure and transparent manner. The absence of a central authority allows for greater privacy and control over one's assets, as users retain their private keys and ownership of their funds during trades.

In contrast to centralized exchanges, where transactions are managed by a single organization that acts as a middleman, DEXs allow for more egalitarian access to trading. They typically use smart contracts to automate trade execution and ensure trustlessness, meaning that the trades can occur without a third party.

The focus on peer-to-peer transactions highlights the fundamental principles of decentralization in blockchain technology, which aim to empower users and minimize reliance on central authorities. This structure not only enhances security but also generally enables a wider range of trading opportunities and innovations in the crypto space.