Most decentralised exchanges do not match buyers with sellers at all. Instead they use pooled reserves of two tokens and a formula that sets the price from the ratio between them. When you swap, you add one token to the pool and remove the other, which shifts that ratio and moves the price slightly. The people who supplied the pool earn a share of the trading fee. A smaller group of venues run a conventional <a href="/glossary/order-book/">order book</a> on-chain instead.
The practical differences from a <a href="/glossary/centralized-exchange/">centralised exchange</a> show up quickly. Anyone can list a token, so obscure assets appear here long before they reach a large exchange, and so do worthless imitations of them. Every swap costs a network fee whether it succeeds or fails. Trades are final: there is no support desk to reverse a mistake, no password reset, and no one to call if you sign the wrong transaction.
A few habits make DEX use much safer. Check the contract address of a token rather than trusting the name or logo, because ticker symbols are not unique and lookalikes are common. Watch the <a href="/glossary/slippage/">slippage</a> setting; a wide tolerance in a thin pool invites a much worse fill than you expected. Review what you are approving, since a token approval can grant ongoing spending permission rather than authorising one trade. And treat any pool with very little depth as a place where getting out may be far harder than getting in.
DeFi Basics and Risks
Key takeaways
- Swaps settle from your own wallet, so custody never leaves you and neither does responsibility for mistakes.
- Pool-based pricing means the size of your trade relative to pool depth is what determines the price you actually get.
- Anyone can list a token on a DEX, so verifying the exact contract address matters more than the name shown in the interface.
Decentralised Exchange (DEX) — frequently asked questions
Do I need to complete identity checks to use a DEX?
Usually not, because there is no account and no company holding your funds. That does not mean the activity is invisible: every swap is recorded on a public ledger and can be traced to your wallet address forever. It also does not remove your tax obligations, which depend on where you live rather than on which venue you used.
Why did my swap cost more than the quoted price?
Two things usually explain it. First, the pool reprices as your own trade moves through it, so a large trade against shallow reserves ends at a worse rate than it started. Second, other transactions can settle between your quote and your confirmation. The network fee is charged on top and is separate from the exchange rate you see.
Related terms
Centralised Exchange (CEX)Automated Market Maker (AMM)Liquidity PoolSlippagedApp All terms →New to crypto, or filling in the gaps? Work through the essentials in Learn, browse every term A–Z, or see live prices for the coins these concepts power.