Decentralized exchange is an open-source trading platform that operates on the blockchain where no single entity controls the flow of data. It is the direct opposite of centralized cryptocurrency exchanges like Coinbase, Kraken or Binance which is controlled by companies and managed by centralized servers. DEXs do not rely on any entity to hold the customers’ funds. All trading transactions supposedly occur directly between users in a Peer-to-Peer (P2P) network through an automated, ‘trustless’ system.
- Server Downtime
- Loss of Customer Funds
- High Possibility of Market Manipulation
Many in the cryptocurrency space have experienced the above issues when dealing with centralized exchanges. DEXs are conceived to alleviate these issues and hopefully provide a viable alternative to centralized exchanges.