Recently, I’ve been looking into the development of decentralized exchanges (DEX), and I realized that this field isn’t as complicated as we thought.

Let’s start with the basic concepts. DEX stands for Decentralized Exchange, which is simply an exchange that is permissionless and non-custodial. The most attractive part is that most don’t require KYC or registration; you can use it whenever you want, and leave when you’re done. Compared to the cumbersome processes of centralized exchanges, this kind of experience is indeed a bit more refreshing.

I saw some data before showing that the trading volume of decentralized exchanges hit a record high during a certain period, and at that time, their share of the total trading volume of centralized exchanges was also rapidly increasing. Although the absolute numbers still seem small, the growth rate is truly worth paying attention to. This indicates that more and more people are starting to accept this decentralized trading method.

DEX mainly falls into two types. One is order-based P2P trading, where buy and sell orders are matched to complete transactions. This mode is closer to the logic of traditional exchanges, with clear counterparties and tight spreads. But this mode has a problem—it’s not very suitable for DeFi tokens. Because DeFi projects are still in the early stages, with insufficient liquidity and high token volatility, it becomes difficult for order-based trading to find enough counterparties.

The other type is liquidity pool-based DEXs, which use Automated Market Maker (AMM) algorithms. This mode completely changes the game rules. AMM allows anyone to become a liquidity provider by depositing assets into a liquidity pool, and then earning transaction fees from trading activity. Uniswap is the leader in this field, followed by projects like Bancor, Balancer, and Curve, which are continuously innovating AMM technology.

I think the reason why the AMM model has been successful is because it solves the liquidity problem of DeFi tokens. Traditional market makers require manual operation, but automated market makers execute automatically through algorithms, which improves efficiency and reduces costs. Moreover, this mode has no geographical restrictions, is fully decentralized, and truly embodies the advantages of blockchain.

More and more people are now experiencing decentralized exchanges, and you’ll find that the entire DeFi ecosystem isn’t that hard to understand. DEX has already become a core infrastructure of DeFi. Once capital efficiency is further improved and risk control mechanisms are more refined, the scale of DeFi funds should have significant growth potential. Instead of just listening to others, try experiencing a decentralized exchange yourself—you’ll truly feel the changes brought by blockchain.