What is a DEX? How decentralised crypto exchanges work
By SendPay Business · · 2 min read
A DEX (decentralised exchange) lets people swap one crypto token for another straight from their own wallet, using smart contracts on a blockchain instead of a company that holds their funds. Uniswap is one well-known example.
How a swap works
- You connect your own wallet to the DEX.
- You pick the tokens to swap and see a quoted price.
- You approve the transaction in your wallet and pay the network's gas fee.
- The smart contract swaps the tokens and sends the new ones to your wallet.
Liquidity pools and automated market makers
Many DEXs have no order book. Instead, other users deposit pairs of tokens into a liquidity pool, and a formula sets the price from the balance of the pool. This is called an automated market maker. The people who supply the tokens earn a share of the trading fees.
DEX vs a regular exchange
On a regular (centralised) exchange, the company holds your funds, checks who you are and matches orders. On a DEX you keep control of your own keys, but there is usually no customer support, no one to reverse a mistake, and no identity checks.
The main risks
Bugs in smart contracts can be exploited, fake tokens can copy real names, big swaps in small pools can suffer heavy slippage, and gas fees can be high when the network is busy. Anyone using a DEX should check token contract addresses carefully.
Where SendPay fits
SendPay does not offer a DEX or other DeFi tools. SendPay platforms let your customers buy, sell and hold crypto next to their cash under your brand, with assets held with regulated partners and a trading fee you set.
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Build my platform →Questions people ask
How does a swap in an AMM pool get priced?
Enter the pool balances and your swap into the free calculator.
AMM swap calculator →What is impermanent loss?
See how a 50/50 pool compares with holding the two tokens.
Impermanent loss calculator →Read next
This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. PayPal, Patreon and Substack are named as reference points only and are not affiliated with SendPay Business.