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What is DEX and How Does It Work?

DEX platforms, which emerged with the crypto world and suddenly took an important place in the lives of crypto investors, manage to stand out with the advantages and system they offer.

In this content, we will try to convey all the details about DEX platforms, especially the answers to the questions of what is DEX and what is a decentralized exchange.

What is DEX?

DEX is the name given to decentralized exchanges without any management mechanism.

The word DEX is formed by the combination of the English Decentralized Exchange words.

DEX platforms, which emerged as an alternative to known and conventional crypto exchanges, provide peer-to-peer transactions called P2P (Peer 2 Peer) without being tied to any center.

What Does DEX Do?

DEX platforms, whose main purpose is to solve problems in centralized crypto exchanges, provide peer-to-peer transactions without a third party.

DEX platforms, which carry out transactions automatically without the need for a third party’s approval or additional transaction thanks to their direct peer-to-peer transactions, stand out with the advantages they offer, even if they have disadvantages, and give investors the advantage of a decentralized stock market.

How DEX Works?

DEX platforms, also called decentralized cryptocurrency exchanges, operate directly on a blockchain and independently. Everything is automated on DEX platforms that allow investors to store funds and transact among themselves independently on the respective blockchain.

The management system works automatically because there is no center in DEX platforms, which are also called exchange makers instead of DEX and decentralized exchange terms by many people and investors.

DEX platforms, where assets and all transactions are secured with distributed ledger technology (DLT), do not have their own blockchain. Instead, they are built on blockchains like Ethereum and Binance Smart Chain (BSC), which are reliable and best suited to DEX platforms.

Differences Between DEX and Centralized Exchanges

One of the issues that investors and users are most curious about is what the differences are between DEX, that is, decentralized exchanges and centralized exchanges, although the logic of DEX is clear.

In a centralized exchange, there is a management mechanism. In these exchanges, first of all, users and investors are asked for identity and contact information in order to make transactions. On decentralized exchanges, ie DEX platforms, you only need the information you need to access your account.

All assets owned in centralized exchanges are kept in the accounts of companies or individuals with a management mechanism until withdrawn. Therefore, until the inside assets are withdrawn, they actually belong to the central stock market, not the investor. In decentralized exchanges, on the other hand, they are kept in a completely private account and even when there is no intervention, those assets still belong to that person.

Another advantage is that decentralized exchanges work automatically or semi-automatically. In fact, the management of decentralized exchanges called DEX is completely peer-to-peer, and the transactions made by users on DEX platforms create a self-management system.

The most important advantage that makes DEX platforms stand out is that the amount of assets owned is completely under the control of the user, and most importantly, the personal and private information of the user, the amount of assets and all other important information are not known by a third party.

What Are the Advantages and Disadvantages of DEX Platforms?

Like many systems and platforms, DEX platforms, that is, decentralized exchanges, have some advantages and disadvantages. Therefore, it is important to be aware of these advantages and disadvantages if working with a DEX platform.

What are the Advantages of DEX Platforms?

The advantages of DEX platforms, which stand out as they are decentralized and the control and management are completely in the hands of the users, can be explained as follows:

  1. Since the investments owned by the investors are not stored in any account or centrally, even if the decentralized exchanges are attacked or crashed, there is no loss of assets. In fact, with this structure, DEX platforms are one step ahead in terms of security.
  2. There is no risk of manipulation on DEX platforms, which are decentralized exchanges. Because they do not have a central system to create manipulation. While in central exchanges the market is intervened from time to time under the name of market correction or for other reasons, this is not the case with DEX platforms.
  3. DEX platforms do not require personal information. Since there is no need to provide any information such as phone number, name, surname, e-mail address, there is no risk of theft of personal data on DEX platforms, that is, in decentralized exchanges. Therefore, decentralized exchanges are seriously advantageous in order to be anonymous.
  4. DEX platforms protect investors and investments against national and international interventions. In this way, investors and their investments remain safe with the effect of regulations.
  5. In addition to investing in only a single crypto asset on DEX platforms, it is also possible to invest in newly listed assets on the same platform. Because it is much easier for new crypto assets to enter decentralized exchanges than centralized exchanges and requires a more affordable budget.

What are the Disadvantages of DEX Platforms?

Although there are many advantages, DEX platforms have disadvantages and we can summarize these disadvantages as follows:

  1. Decentralized exchanges are somewhat dangerous when it comes to data recovery. Any personal information identification, KYC verification, etc. Since there are no transactions, if the password of the platform or the private key called private key is lost, there is no chance of recovering the data again.
  2. The most used transactions of centralized crypto exchanges, such as stop limit and margin trade, are not found in almost all decentralized exchanges.
  3. Crypto assets that do not support smart contracts cannot be traded on decentralized exchanges that allow transactions with smart contracts.
  4. DEX platforms, that is, decentralized exchanges, have lower liquidity than centralized exchanges. For this reason, centralized exchanges are more preferred by many users.
  5. Since there is no management mechanism on DEX platforms, services such as live support and customer service are not available.
  6. Decentralized exchanges running on the blockchain are slower than centralized exchanges as all transactions are recorded on the blockchain.
  7. Since there are too many transactions on DEX platforms, it will put a load on the blockchain, so spontaneous transaction fees and commissions can increase significantly from time to time.

Frequently Asked Questions About DEX Platforms

In this section, we will try to answer the most frequently asked questions about DEX (Decentralized Exchange), that is, decentralized exchanges.

What is Decentralized Exchange?

Decentralized Exchange is the clear form of the term DEX.

Decentralized Exchange is used less frequently than the abbreviation DEX because it is easier for users to use the term DEX. If you are wondering what DEX means, it is an abbreviation consisting of the words Decentralized and Exchange.

What is Decentralized Finance?

You can click here for detailed information and explanation about decentralized finance, abbreviated as DeFi.

Which DEX Platforms Are The Most Used?

While there are already hundreds of DEX platforms, some of them can be preferred a little more than others. Platforms such as Binance DEX, PancakeSwap, UniSwap are some of them.

Aslıhan Yüksel

Aslihan Yuksel, who works as a manager inleading brands and companies in the business world; As a result of his interest in the crypto world and its markets, he has been interested in cryptocurrencies, markets and developments for a long time and transfers all his knowledge within Binansal.