What is a decentralized exchange (DEX)?

A decentralized exchange (DEX) is a type of cryptocurrency exchange platform that operates without a central authority or intermediary. Unlike traditional exchanges, where transactions are facilitated by a centralized entity, DEXs allow users to trade directly with each other peer-to-peer (P2P) through smart contracts or other decentralized protocols.

Key characteristics of decentralized exchanges include:

1. User Control: Users retain control of their funds throughout the trading process. They typically connect their digital wallets directly to the exchange, enabling them to trade directly from their wallets without depositing funds into exchange-controlled accounts.
2. Reduced Counterparty Risk: Since trades occur directly between users’ wallets, there’s a reduced risk of hacks or theft compared to centralized exchanges, where users must trust the exchange with custody of their funds.
3. Anonymity and Privacy: DEXs often offer greater privacy as users don’t need to provide personal information or go through extensive KYC (Know Your Customer) procedures to trade. 
4. Global Access: Anyone with an internet connection and compatible digital wallet can access decentralized exchanges, making them accessible to users worldwide.

DEXs have gained popularity due to their alignment with the core principles of decentralization and the increased security and privacy they offer to cryptocurrency traders. However, they may face challenges related to liquidity, user experience, and regulatory compliance.