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What's a Decentralized Exchange?

April 24, 2021

A decentralized exchange (DEXs) can be defined as a series of smart contracts that allow users to trade assets in a trust minimized manner. Recently, decentralized exchanges have supercharged DeFi activity and made it easy to swap different tokens, but how do these systems differ from their centralized counterparts?

Competitive advantages of decentralized exchanges


One of the most important features of a decentralized exchange is that it does not require users to hand over their funds to a centralized party. Instead, decentralized exchanges allow anyone to easily swap between different assets directly from their wallet.

Instant Token Listings

With the ever-growing amount of DeFi native assets, it has been hard for centralized exchanges to keep up. Decentralized exchanges make it easy for anyone to create a market for any token. Consequentially, protocols are no longer are reliant on a centralized exchange to list their token for it to be traded.

Trustless Exchange for Smart Contracts

In DeFi, smart contracts are starting to govern a wide range of assets. As a result, some of these smart contracts may need to periodically rebalance their holdings. However, they are unable to do this trustlessly if forced to trade with a centralized exchange. Instead, these smart contracts can directly tap into the assets on decentralized exchanges. For example, imagine a Decentralized Autonomous Organization (DAO) that holds most of its balance sheet in ETH, but the community votes to swap half of the ETH into DAI. The DAO contract can make this swap through a decentralized exchange to make sure that everyone in the community is confident about the swap executing trustlessly. These trustless transactions are also instantly verifiable on the Ethereum blockchain so anyone knows where their assets are and about any transactions that have taken place.

Decentralized exchange aggregators

Since the number of decentralized exchanges has grown over the last few years, it can be hard to determine which exchange will give you the best price for every asset you are trying to swap. As a result, Zapper Exchange provides a decentralized exchange aggregator to find the best trade across different exchanges with the least slippage, and hence removes the need to ever manually search for the best price. Other popular DEX aggregators are 1inch, Paraswap, and Matcha.

Common Decentralized Exchanges

  • Uniswap
  • Sushiswap
  • Curve
  • Balancer
  • Bancor
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