Overview
DEXs allow users to maintain control of their private keys while trading. Unlike centralized exchanges, DEXs do not hold user funds; instead, trades are executed directly on the blockchain via smart contracts.
Pros and Cons
- Pros: Non-custodial (you control your funds), privacy (no KYC usually), access to a wider range of tokens.
- Cons: Higher transaction fees (gas), slower execution, risk of smart contract bugs, and potential for slippage.
Evolution
DEXs have evolved from simple order-book models to highly efficient Automated Market Makers (AMMs).