A decentralized exchange (DEX) is a crypto exchange that runs as smart contracts on a blockchain. Trades execute on-chain, users hold their own keys throughout, and no central operator takes custody of funds.
The most common DEX design is the **automated market maker (AMM)** pioneered by Uniswap. Liquidity providers deposit pairs of tokens into pools; traders swap against the pool at a price derived from the pool's balance ratio. Every swap moves the ratio and pays a small fee to LPs.
Alternatives to AMMs: - **Order-book DEXes** (dYdX, Serum historically) use on-chain or off-chain order books, closer to centralized-exchange UX. - **Request-for-quote (RFQ)** DEXes (CowSwap, 1inch Fusion) let professional market-makers fill your order at a committed price, reducing slippage on long-tail pairs.
DEX advantages over centralized exchanges (CEXes): you hold your keys, no KYC for most (regulatory pressure is closing this), no counterparty risk from exchange insolvency, 24/7 availability.
DEX disadvantages: gas fees (especially on L1), slippage on thin pools, no fiat on-ramp, smart-contract risk.