What is a decentralized exchange?

Updated 4 months ago by Andrew Rollins

Decentralized exchanges trade cryptocurrencies using blockchain smart contracts and trading protocols. When people talk about a decentralized exchange (a "dex" or "DEX" for short), they are often talking about an exchange where trades happen peer to peer instead of through a centralized party. Some people also refer to this as a non-custodial exchange. Everbloom is a decentralized exchange.

Check out our technical explanation of decentralized exchanges on our blog post, What Are Decentralized Exchanges?.

Benefits of Using a Decentralized Exchange

One of the most compelling aspects of a decentralized exchange is that it gives customers complete control over their assets. Customers on centralized exchanges must deposit their funds onto the exchange in order to conduct transactions. This means that funds on centralized exchanges are held by the central party’s wallet. The customer’s access to their funds is dependent on that central party. If a centralized exchange goes offline, the customer cannot access their funds.

In addition to availability concerns, centralized exchanges are a large target for hackers because all funds are stored by one entity. The reward-to-work ratio of hacking a centralized exchange is much more attractive than hacking each individual user in a decentralized exchange.

On decentralized exchanges, customers have the ability to transact directly between wallets through the exchange’s orderbook (or even directly). The users have full control of their funds at every step.

One of the most compelling aspects of a decentralized exchange is that it gives customers complete control over their assets. Customers on centralized exchanges must deposit their funds onto the exchange in order to conduct transactions. This means that funds on centralized exchanges are held by the central party’s wallet. The customer’s access to their funds is dependent on that central party. If a centralized exchange goes offline, the customer cannot access their funds.

In addition to availability concerns, centralized exchanges are a large target for hackers because all funds are stored by one entity. The reward-to-work ratio of hacking a centralized exchange is much more attractive than hacking each individual user in a decentralized exchange.

On decentralized exchanges, customers have the ability to transact directly between wallets through the exchange’s orderbook (or even directly). The users have full control of their funds at every step. As long as users are not irresponsible with their private keys, they have a greater degree of control over their accounts and transactions on a decentralized exchange.

Further Reading

  1. What Are Decentralized Exchanges? by the Everbloom team
  2. Understanding Decentralized Exchanges by Dominiek Ter Heide
  3. Decentralized Cryptocurrency Exchanges by Phil Glazer

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