DEX, or decentralized exchange: liquidity pools and AMMs

A DEX (decentralized exchange) is a crypto-asset trading platform built on smart contracts, with no central operator holding funds. You trade from your own wallet. Instead of an order book, many DEXs use a liquidity pool, and the price is set by the ratio of assets in the pool, which is called the AMM (automated market maker) model.

The advantage is that you do not have to entrust your funds to anyone, but the user is responsible for the security of the wallet and for every transaction they sign. Network fees and slippage add to the costs, especially in shallow pools. Fake tokens and trap contracts do occur, and “decentralized” does not mean anonymous or free of risk. There is usually no customer support either.