What is a DEX?

Exchanges are places in the crypto-sphere where users trade their assets, for example selling USDC in favor of Bitcoin. There are two main types of exchanges.

Centralized Exchanges

When trading crypto, most users enter the crypto-sphere by using centralized exchanges. Centralized exchanges (CEX) are operated by a central authority and facilitate cryptocurrency trading by matching buyers and sellers through a centralized order book. Users typically deposit their assets into the exchange's wallets and trades occur on the exchange's platform. These exchanges often require users to undergo identity verification (KYC) and comply with regulatory requirements (AML for example).

Decentralized Exchanges

In contrast, decentralized exchanges (DEX) like the Kopi DEX operate without a central authority, enabling peer-to-peer trading of cryptocurrencies directly between users. DEXs utilize blockchain technology and smart contracts to automate trading, allowing users to retain control of their assets in their own wallets throughout the trading process. This decentralized nature makes DEXs more resistant to censorship, hacking, and downtime, while also providing greater privacy and security compared to centralized exchanges.

User types

Decentralized exchanges have two types of users: Passive and active. Passive users add their assets to the DEX as liquidity while active users are trading. When trading, users give assets in one currency and receive assets in another. The assets they receive are coming from the passive users. The trading users have to pay a trading fee which is given to the passive users.