Decentralized exchanges (DEX) are a sort of cryptocurrency exchange that enables for secure online peer-to-peer cryptocurrency transactions without the use of a middleman. A DEX replaces a central authority with a 'Smart Contract’. A smart contract is a piece of code that enables two parties to reach an agreement.
Limitations of a DEX
You can only trade crypto for crypto on a DEX. Furthermore, these cryptos must be on the same blockchain; for example, on Uniswap, you may only swap Ethereum with Ethereum-based tokens like $OMG, $CVC, and so on. There is an option to trade different tokens in SushiSwap, however the trade must always be between the same blockchain.
Benefits
To begin trading tokens, no KYC is required, you remain anonymous.
There isn't a centralized authority in place. Transactions are verified using open source code.
DEXes are faster than central exchanges
Convenience cost is low.
Downsides
For your questions, there are community forums, but no support team. Any errors made by the user, such as transferring tokens to the wrong address or sending tokens to a fraudster, are not refunded.
Users must use a hot storage device, which means they must be connected to the internet in order to conduct transactions; however, wallets such as Metamask can be used as an alternative for the connectivity issue.
Because the code is opensource, a hacker can experiment with it and potentially identify a bug that makes a DEX vulnerable to hackers.
A Dex uses the Order Book approach, which means you may either place your own exchange order and wait for someone to accept your terms, or you can look through the order books to discover the appropriate order for you. In such situations, the waiting period is frequently quite long.
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