A decentralized exchange (DEX, decentralized exchange) is a platform for exchanging digital assets that operates on the principle of decentralization – without a central management in the form of one person or group of people and without a central node or server.
In essence, a decentralized exchange is a blockchain platform for peer-to-peer (p2p) transactions without intermediaries, which does not store user personal data and information about their funds on its servers. Users exchange assets using smart contracts and distributed registry-based algorithms.
So what do governments think of financial technology platforms that are essentially run only by the community of users themselves, with no central authority responsible for any transactions on such exchanges?
As with cryptocurrencies in general, the authorities of different countries do not come to an unambiguous position. For example, the Singapore regulator wants to create a new regulatory framework specifically for dexes, while the U.S. is trying to apply the existing one.
In most countries of the world, decentralized exchanges are not regulated because they are not tied to any individuals or legal entities. In the case of any violations, there is simply no one to bring charges or send formal inquiries.
Because the distinctive advantages of decentralized exchanges – anonymity and security – are in line with the core tenets of blockchain, they are notoriously popular among advanced crypto-traders. The industry can well expect even greater growth and mass user adoption, thanks to the desire of new projects to simplify the user interface and popularization among ordinary cryptocurrency users.
Decentralized exchanges answer the main demand of the cryptocurrency world: users do not want and should not trust their data and funds to third parties.
Thanks to the spread of decentralized finance, we can expect a significant technological development of projects and the introduction of a wide range of new features in dexes.
In addition, we can already see that centralized crypto exchanges are adding DEX functionality to their infrastructure because they see some demand. Among other things, this fact positively affects the growth of trading volumes of decentralized exchanges.