Today we are going to look at what DEX is. Greetings to our adored readers, as well as those who are here for the first time. Make yourself comfortable, it will be interesting.
In simple words, Dex is an exchange that is ideal for ordinary users. Since all contact there takes place without unnecessary obligations. Dex’s servers do not store users’ personal data, and most importantly, they do not store their funds. Dex acts solely as a platform for finding matches on applications for the purchase or sale of user assets.
Decentralized exchanges allow all users to exchange cryptocurrency tokens directly with each other, without any intermediaries, etc.
This type of contact is called P2P. It stands for peer-to-peer, person-to-person. Completely equal, peer-to-peer, partnership model of interaction “on an equal footing”. It is also referred to as peer-to-peer.
At its origins, the term P2P was applied to the transfer of data within peer-to-peer computer networks. In such networks, all participants in the network were equal. Including everyone can perform both the functions of a server where files are stored, and the functions of a client that downloads them.
This model works on what we all know well, namely “torrents”. Programs that support this technology use a special peer-to-peer network protocol (called Bittorrent), one of its features is that each network member who has downloaded any fragment of the transferred file to his device can distribute it to other participants. Well, I think everyone knows very well how it works. Turn left rudder!
In business, P2P is talked about when it comes to:
P2P payments are payments between individuals. As a rule, these are transfers between cards or bank accounts that are carried out using mobile applications.
P2P investment (crowdlending) is a method of financing when the platform directly connects the investor and the borrower.
P2P lending is a way of peer-to-peer lending, when the site allows you to lend or borrow money without the participation of a bank or other financial organization.
Let’s get back to DEX. To clearly understand how decentralized exchanges work, you first need to understand centralized exchanges. So, the Centralized Exchange, for example, the same Binance or Coinbase, is a platform where users can buy, sell or exchange cryptocurrencies and tokens that are available on this exchange.
Let’s say you want to buy Bitcoin. You can go to the exchange, register with your bank details, identify information, and deposit some cash. (Sometimes this process takes several days, which is one of the downsides of centralized exchanges compared to DEXs.) The exchange will tell you the price – based on the “order book” of people buying and selling for different amounts, and you can complete the transaction.
How does a decentralized exchange work? DEX uses smart contracts (automatically executed protocols) to facilitate trade between people, but does not control their coins.
The DEX handles this in one of three ways: an in-chain order book, an off-chain order book, or an automated market maker approach.
In the order book within the chain, each transaction is recorded on the blockchain. This is not only the purchase itself, but also a request to purchase or cancel an order. This is the ideal decentralization option, but having to put everything on the blockchain can make it more expensive and slower.
A decentralized exchange facilitates trade between people, but does not control their coins.