In traditional finance, stock exchanges (like NYSE and NASDAQ) are synonymous with ‘centralized trading platforms’. As we enter the blockchain era, decentralized exchanges (DEX) have become the new darling of financial innovation. Today, let’s explore the world of DEX and see how it reshapes the financial landscape. ‘Follow for more’
🔹 What is DEX?
DEX (Decentralized Exchange) = An exchange that operates on the blockchain without centralized intermediaries. Users trade directly with each other and have control over their assets.
Compared to centralized exchanges (CEX):
🔸 The operational mechanism of DEX: AMM (Automated Market Maker)
Traditional exchanges rely on order books (order matching), while DEX primarily relies on the AMM model.
You trade with the ‘liquidity pool’ in smart contracts.
Prices are automatically calculated by the ‘constant product formula’: x * y = k (the classic model of Uniswap).
Liquidity providers (LP) deposit tokens into the pool and earn trading fees (e.g., 0.3%).
For example:
When you want to swap 100 USDT for ETH, you don’t look for a ‘counterparty’ but trade with the pool, and the ETH-USDT reserves in the pool will update automatically.
The larger the liquidity, the smaller the slippage, resulting in a better trading experience.
🔸 Current status and data of mainstream DEX (June 2025)
Uniswap (Ethereum): Daily trading volume exceeds $1 billion, with a total value locked (TVL) exceeding $5 billion.
PancakeSwap (BNB Chain): Daily trading volume around $300 million, with a TVL exceeding $1.8 billion.
Curve (Ethereum): Focused on stablecoin trading, with a TVL exceeding $2 billion, attracting stablecoin whales.
According to data, the total locked value in DEX (DEX TVL) accounts for 40% of the total TVL in DeFi, indicating that DEX has become the core of the DeFi ecosystem.
🔹 Advantages and risks of DEX
✅ Advantages:
Self-custody: Assets are safer, and there is no need to worry about exit scams.
Transparency: On-chain verifiable, trading records are public.
Fast innovation: Low barriers to token listings, new projects can quickly attract attention.
⚠️ Risks:
Smart contract vulnerabilities: DEXs have been subject to attacks or thefts, such as the vulnerability attack on SushiSwap in 2023.
‘Impermanent loss’ risk: As a liquidity provider (LP), you may incur losses during severe price fluctuations.
Regulatory compliance: Regulatory frameworks for DEXs are still being explored in various countries.
🔸 Future trends of DEX & my observations
1️⃣ Cross-chain interoperability: Cross-chain protocols like LayerZero and Wormhole are connecting liquidity across different chains for DEXs.
2️⃣ On-chain derivatives DEXs: Such as dYdX and GMX, which support contract trading and have daily trading volumes exceeding $2 billion, creating competition with centralized exchanges.
3️⃣ AI + DEX: AI-driven market makers may emerge in the future, automatically adjusting liquidity to reduce slippage and impermanent loss.
💡 My viewpoint:
DEX is not synonymous with ‘scamming users’, but rather is on-chain financial infrastructure. Users should understand more about: smart contract security, impermanent loss mechanisms, and invest cautiously as liquidity providers. For newcomers who want to experience true ‘on-chain free trading’, DEX is a crucial lesson to learn!
📝 Summary
DEX allows you to break free from centralized exchanges and truly control your assets.
At the same time, the risks associated with smart contracts should not be underestimated; due diligence and cautious operation are essential.
The future of Web3 will certainly be a hybrid ecosystem where both DEX and CEX coexist.
