Decentralized exchanges (DEX) are autonomous decentralized applications that allow buyers or sellers to trade assets without using a trusted third party to act as an intermediary.
As its name indicates, this type of exchange is the opposite of centralized exchanges.
In a centralized exchange, users transfer their funds into the custody of the exchange, who then act as a custodian and oversee any trades or swaps. Robin Hood, Binance, or Coinbase are examples of a centralized exchange.
DEXes operate via Smart Contracts and rely on Automated Market Makers, such as Uniswap, or automated matching engines to match buyers and sellers, in the case of order book-based DEXes such as Kyber or Serum. In either case, the system allows trading almost anything peer to peer.
Decentralized exchanges embrace the early Bitcoin spirit of trustlessness and privacy. This ensures users don’t need to rely on a third party to grant access or process transactions, and keeping tokens held in a personally controlled wallet rather than held by a custodian where they can be stolen in a hack.