A Beginner’s Guide To Decentralized Exchanges

For new crypto investors a centralized exchange (CEX) is often familiar and intuitive, but somewhat limiting. That’s why many people quickly discover that in order to more fully participate in the crypto economy, they have to master safely using a decentralized exchange (DEX) for their transactions. This guide will explain DEXes, allowing the novice user to understand how and why they work.

What Are Decentralized Exchanges?

While CEXes are accommodating to beginners with their account creation, verification, and deposit processes, DEXes are something very different. Yet, DEXes are an integral part of the crypto world.

CEXes are so convenient to use that they are nearly frictionless. This is because they are centralized and able to store excess cryptocurrencies of various coins in order to facilitate smooth transactions between users. CEXes have a much broader userbase, often focus on onboarding new people to crypto, and listing only the most popular, high market cap, least risky cryptocurrencies.

DEXes on the other hand target more experienced users looking for a broader range of tokens to buy and sell. In general we can highlight the differences like this:

Features of CEXes

• Smooth user experience

• Intuitive for crypto newbies

• Large availability (liquidity) of the most popular cryptocurrencies

• Hefty fees

Features of DEXes

• Target more advanced users

• Less liquidity, but broader range of cryptocurrencies available

• Lower fees possible, but also somewhat unpredictable with gas and slippage

• ‘Gas’ refers to the amount of crypto required as a fee to complete a transaction. It can be unpredictable due to network load at any given time. This fee typically goes to the people that run validators that help keep the network running.

• ‘Slippage’ is when the value of a coin changes between when you initiate the transaction and when it actually completes. Volatility can make slippage higher or lower, but you can set the amount of slippage that you are willing to accept.

For more on CEXes, check out our article here. For a detailed step-by-step breakdown of how to use a DEX, check out our article on crypto to crypto exchanges. And in order to use a CEX you will almost certainly need to use an intermediary hot wallet.

Dangers of Centralized Exchanges

Unfortunately, people unfamiliar with DEXes and hot wallets commonly lose money when they are first starting out. These 

1. Triple check the address you are sending to and the correct blockchain. Sending crypto to the wrong address is the most common way people lose money. If you send ETH to SOL address, your ETH is likely unrecoverable.
   
   

2. Use a tool like DexScreener to get the contract address of the precise coin you want, and use that address to search for the coin inside of the CEX. Relying on the keyword search tool of the DEX you are using is a surefire way to end up with an imposter coin.
   
   

3. Verify the website you are using is legitimate. If you receive a URL via direct message on any platform, find a second or third way to verify that it is legitimate. Imposter scams are rife in the crypto world and they often appear to be a trusted influencer. There have even been fake AI-generated livestreams of public figures on YouTube promising to double your holdings if you just verify your wallet with their special website.

There are more ways to lose money in crypto that can be outlined here, but if you follow the general principle of double and triple checking everything, you can keep yourself safe.

Most popular Decentralized Exchanges

To get you started on the right foot, here are some of the most popular DEXes out there. While they are commonly used by the crypto community, be aware that they are unregulated and you should still verify everything when using them:

• Uniswap

• Pancake Swap

• SushiSwap

• Aerodrome Finance

Conclusion

For serious crypto investors looking for more high risk/high reward opportunities, getting familiar with DEXes is a must. 

Just keep in mind the guidelines above, and start with small test transactions and you’ll soon be enjoying the full benefits of the crypto market while protecting your investments.