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DEXs operate in a manner opposite to centralized exchanges. DEXs provide a trading ecosystem closely aligned with the core values of the cryptocurrency community, emphasizing "individual empowerment," "decentralization," and "financial sovereignty."
In general, cryptocurrency exchanges have three fundamental functions: "fund management," "order book," and "cryptocurrency trading." To make an exchange truly decentralized, each of these functions must operate in a decentralized manner.
- Users' funds are not entrusted to third parties. Users are the custodians of their funds, which are stored in their own hot and cold wallets.
- Orders must be sent directly from one trading user to another, with their applications compiling order books, without relying on any central order book service.
- As users' applications communicate to establish the trading process, orders are matched directly between traders and then settled through inter-chain networks, facilitating peer-to-peer settlements.
DEXs operate in a decentralized manner, with cryptocurrency transactions taking place directly between trading parties, settling on the blockchain. This means that users do not need to rely on a single centralized entity but rather depend on multiple independent nodes connected to the exchange to facilitate transactions.
Because DEXs are platforms where trades occur directly between trading parties, they do not hold the funds of every investor in the exchange's wallet. Users on DEXs have custodial rights over their funds, wallets, and private keys. No centralized entity can prevent users from trading or freeze user accounts. However, if a user loses access to their account or loses their keys, there is no central authority to recover access. Similar to the real world, if someone leaves their wallet on a park bench, they would lose their wallet.
In the early days, trading on DEXs had some serious drawbacks: slow transaction speeds, low liquidity, and an overall poor user experience. Decentralized exchanges were primarily used by cryptocurrency veterans who didn't mind the DIY nature of trading on niche platforms. However, things have changed significantly.
Trading on DEXs today can be as straightforward as trading on centralized exchanges. Decentralized trading platforms have put a lot of effort into their user interfaces, making it easy for cryptocurrency traders of different experience levels to use them.
With the rise of DeFi, top-tier DEXs like Uniswap, MDEX, PancakeSwap, SushiSwap, and 1inch Exchange have seen substantial improvements in liquidity. As many projects develop based on next-generation blockchain ecosystems like Solana, users can expect more robust functionality and significantly faster transaction speeds for on-chain asset trading. |
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Post time 10-10-2023 12:00:12