Definition:
DEX is an acronym for decentralized exchange. A DEX is a type of exchange where trades are done directly between users (peer-to-peer). This type of operation contrasts conventional exchanges, where core functions of the exchange are conducted in a centralized manner by a trusted third-party or authority.
Explanation:
Although centralized exchanges are easy to use and provide various functionalities, they represent a security risk. These exchanges are in control of users’ private keys; therefore, the security of funds stored on the exchange is dependent on the security of the exchange. Additionally, due to KYC (know your customer) and AML (Anti-Money Laundering) regulations, customer’s personal records are also kept on centralized servers. These attributes make centralized exchanges vulnerable to hacks and theft.
The hosting of decentralized exchanges, on the other hand, is distributed through a global network of nodes; thus increasing the exchange’s security and minimizing the risk of server downtime. Additionally, users are in control of their private keys; thus giving them more control of their funds while also allowing them to remain anonymous.
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