DEX

DEXes solve the fundamental problem of how to trade tokens without trusting a centralised exchange to hold your funds. Centralised exchanges (Coinbase, Binance, Kraken) require users to deposit their tokens into the exchange’s wallets before trading. The exchange controls those wallets, which means it can be hacked, frozen by regulators, or run away with user funds. DEXes instead let users trade directly from their own wallets through smart contracts, which means the user never gives up custody.

The dominant DEX architecture today is the AMM (Automated Market Maker), pioneered by Uniswap and copied or improved on by every major DEX since. Liquidity providers deposit equal values of two tokens into a pool, the smart contract uses a pricing formula to set exchange rates, and traders can swap against the pool at the formula’s quoted price. Fees from trades go to the liquidity providers in proportion to their share of the pool. The mechanism is fully automatic and runs entirely on-chain.

The largest DEXes by volume have specialised. Uniswap dominates Ethereum and most L2s. Aerodrome dominates Base. Raydium and Jupiter dominate Solana. Curve specialises in stablecoin and pegged-asset trading. PancakeSwap dominates BNB Chain. Each has its own quirks but the underlying primitive is the same: an on-chain liquidity pool that anyone can trade against without permission. Trading volume on the top DEXes regularly exceeds the trading volume on smaller centralised exchanges.

In DeAI, DEXes are usually where on-chain liquidity for project tokens lives. Venice’s VVV trades on Aerodrome. Bittensor’s TAO trades on Uniswap and several CEXes simultaneously. Most DeAI tokens have some DEX presence even if their primary liquidity is on a centralised exchange. The OYM Liquidity and Access dimension scores projects partly on the depth of their DEX liquidity, because a token that only trades on a single thinly-staked CEX has more counterparty risk than one with deep DEX liquidity that anyone can verify on-chain.