What is a DEX and How Does It Work?

A decentralized exchange (DEX) is a cryptocurrency trading platform that operates without a central authority. Unlike centralized exchanges like Coinbase or Binance, DEXs allow peer-to-peer trading directly from your wallet.

How DEXs Differ from Centralized Exchanges

Feature	Centralized Exchange (CEX)	Decentralized Exchange (DEX)
Custody	Exchange holds your funds	You keep your funds in your wallet
Account	Email/password required	Wallet connection only
KYC	Usually required	Not required
Trading	Order book matching	Automated Market Makers (AMMs)
Availability	Can freeze accounts	Permissionless, always available

How Automated Market Makers Work

Most DEXs use Automated Market Makers (AMMs) instead of traditional order books. Here’s how they work:

Liquidity Pools: Users deposit token pairs (e.g., ETH/USDC) into smart contract pools
Constant Product Formula: The AMM uses a formula (typically x * y = k) to determine prices
Price Discovery: As traders buy one token, its price increases relative to the other
Liquidity Provider Fees: LPs earn a percentage of each trade (typically 0.3%)

Example Trade Flow

User wants to swap 1 ETH for USDC:

1. Connect wallet to DEX interface
2. Select ETH → USDC swap
3. DEX router finds best price across pools
4. User approves the transaction
5. Smart contract executes the swap atomically
6. Tokens arrive in user's wallet

Popular DEX Protocols

Ethereum Mainnet

Uniswap - The original AMM, largest liquidity
SushiSwap - Uniswap fork with additional features
Curve - Optimized for stablecoin swaps
Balancer - Multi-token weighted pools

Layer 2 Networks

Aerodrome (Base) - ve(3,3) tokenomics model
Velodrome (Optimism) - Similar ve(3,3) design
Camelot (Arbitrum) - Dual-token model
SyncSwap (zkSync) - ZK-native DEX

Other Chains

PancakeSwap (BNB Chain) - Largest on BSC
Raydium (Solana) - Hybrid AMM + order book
Trader Joe (Avalanche) - Liquidity Book model

DEX Aggregators

DEX aggregators search across multiple DEXs to find the best price:

1inch - Splits orders across DEXs for optimal rates
Paraswap - Gas-optimized routing
0x/Matcha - Professional-grade aggregation
CowSwap - MEV-protected trades
Jupiter (Solana) - Dominant Solana aggregator

Advantages of DEXs

Self-Custody: Your keys, your coins
Permissionless: No account freezes or geographic restrictions
Transparency: All trades visible on-chain
Composability: Can be integrated with other DeFi protocols
24/7 Availability: No downtime for maintenance

See It on Ramaris

Because every DEX trade is recorded on-chain, Ramaris can visualize the price action around each swap. When you explore wallet or strategy activity, completed trades include candlestick charts with entry and exit markers. You can share these charts as images or links — useful for reviewing trades or showing others exactly what happened.

Risks and Considerations

Smart Contract Risk: Bugs can lead to fund loss
Impermanent Loss: LPs can lose value vs. holding
Slippage: Large trades move prices against you
MEV: Bots may front-run your trades
Gas Costs: Ethereum mainnet can be expensive

Getting Started with DEXs

Set up a non-custodial wallet (MetaMask, Rabby, Coinbase Wallet, Rainbow)
Fund your wallet with the native gas token (ETH, MATIC, etc.)
Connect to a DEX through their web interface
Start with small amounts to understand the flow
Check token addresses to avoid scam tokens