A peer-to-peer platform for cryptocurrencies. A decentralized exchange (DeX) differs from a centralized exchange (CeX) such as Coinbase and Binance, which maintains all access to the coins and functions like a Vanguard or Fidelty account for crypto.
A DeX, such as Uniswap and SushiSwap, enables people to exchange one crypto token for another using an "automated market maker" (AMM) programmed in a smart contract. The exchange rate is determined by a formula (algorithm). See
AMM and
smart contract.
Set Up a Wallet and Load It With Crypto
A decentralized exchange requires that users employ their own wallets and store their secret crypto keys in a safe place. To make a trade, people convert fiat currency (dollars, Euros, etc.) to crypto via the fiat-to-crypto service offered by the wallet (see
crypto on-ramp).
Wallets interact with the decentralized exchange via a programming interface (API) that is not yet standard across all platforms (hopefully in the future). See
crypto wallet.
Where Do the Tokens to Swap Come From?
Decentralized exchanges use software-driven market makers to swap tokens stored in "liquidity pools." To earn fees, anyone can be a "liquidity miner" and deposit their digital assets in a pool (see
crypto liquidity pool,
AMM and
yield farming). See
crypto exchange.