A decentralized exchange, or DEX, allows cryptocurrency holders to securely exchange their tokens without giving up custody to a third party, such as a centralized exchange like Binance, Coinbase, etc. When you give up custody of your tokens to a third party, you’re trusting them to properly manage your tokens, as well as protect them from potential hacks.
In addition to the benefit of retaining custody of your tokens while trading, other benefits of using a DEX include:
- Being globally accessible. DEXs are usable by almost anyone in the world due to their distributed architecture. Centralized exchanges often are restricted from use by those who live outside of the countries in which they operate.
- A higher degree of privacy. Using a DEX doesn’t require registration; thus, there is no personal data at risk of being misused or stolen.
- Lower cost to trade. Compared to centralized exchanges, DEXs have lower overhead costs and can offer cheaper, or even no, trading fees.
- Lower risk of price or trading volume manipulation. The open nature of DEX order books and the absence of a centralized operator reduces the ability and incentive to falsify price and trade volume information.
As history has shown, significant losses have occurred (and will continue to occur) due to centralized exchanges being hacked and mismanaged. The only way to truly protect yourself from this risk is to always retain custody of your tokens and trade them on a DEX.
- Most Significant Hacks of 2019 - New Record of Twelve in One Year [Cointelegraph - January 5, 2020]
- Hackers Stole $40 Million from Binance Cryptocurrency Exchange [Wired - June 8, 2019]
- Quadriga's Wallets Are Empty, Putting Fate Of $137 Million In Doubt [NPR - March 6, 2019]
- 2018: A Record-Breaking Year for Crypto Exchange Hacks [Coindesk - December 29, 2018]