What is a DEX?
A Decentralised Exchange (DEX) is a crypto trading platform that runs entirely on smart contracts. Unlike centralised exchanges (CEXs) like Binance or Coinbase, a DEX has no company holding your funds, no KYC requirements, and no single point of failure.
How DEXs work
DEXs use Automated Market Makers (AMMs) instead of order books. An AMM is a smart contract that holds a pool of two tokens and uses a mathematical formula to determine the exchange rate. When you swap Token A for Token B, you're trading against the pool, not against another user.
CEX vs DEX comparison
| Feature | CEX | DEX |
|---|---|---|
| Custody | Exchange holds funds | You hold funds |
| KYC | Required | Not required |
| Downtime | Possible | None (blockchain always runs) |
| Hack risk | High (honeypot) | Lower (distributed) |
| Fees | 0.1%–0.5% | 0.01%–1% |
Major DEXs on BNB Smart Chain
- PancakeSwap — largest DEX on BSC by volume
- Uniswap V3 — available on BSC
- Thena — concentrated liquidity DEX
How DEX fees generate yield
Every swap on a DEX generates a fee (e.g. 0.01% on PancakeSwap V3 USDT/USDC). This fee is distributed to liquidity providers proportional to their share of the pool. High-volume pools generate significant yield for LPs.