What are Decentralized Exchanges and How do they Work?

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• What are Decentralized Exchanges and How do they
  Work?
• Cryptocurrencies are volatile in their market
  value. And this can make them both very
  profitable and very risky to invest in. However,
  the very profitable part is enough to entice
  thousands of crypto users into investing in these
  currencies. This buying, selling and trading of
  crypto assets has to be done on specified
  platforms called exchanges which are
  basically of two types centralized and
  decentralized.
• To understand decentralized exchanges
  (DEX), it is important to know what
  centralized exchanges (CEX) first.
• Centralized Exchanges (CEX)
• Centralized exchanges like Binance allow users to
  register on their platforms, add funds to their
  account wallet, and start trading currencies with
  other users. Users give custody of their funds to
• the platform and trades are conducted based on
  the platforms order book. This means that a
  user willing to sell an X asset at an Xp price is
  matched with a user looking to buy that same X
  asset at that same Xp price.
• These exchanges are efficient, user friendly, and
  are run by trusted companies. But they have some
  drawbacks too they are run by centralized
  companies who store users funds in their own
  databases. This means that those companies, out
  of malicious intent or because of some legal
  issue, can freeze their users funds and/or
  direct them to another location. These
  centralized entities are also prone to hacks that
  can result in losses amounting to millions.
• It was due to some of these concerns, and
  the rise of DeFi, that the concept of
  decentralized exchanges was put forward.
• What are Decentralized Exchanges (DEX)?
• Decentralized exchanges are not run by
  centralized entities, instead they are
  collectively run by its users on the
  blockchain with the help of automated
  processes called smart contracts. In
• short, decentralized exchanges are platforms
  that enable users to exchange
  cryptocurrencies over automated software
  applications without the need for a centralized
  authority watching over
• the whole process.

processes of registration and authentication etc
(which could take days in some cases),
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• but are also slower in their transaction speeds
  when compared to centralized exchanges
  (especially if the entire exchange process is
  happening on chain).
• How do Decentralized Exchanges work?
• The basic working principle of decentralized
  exchanges has already been explained currency
• exchanges happening on the blockchain, run
  by automated smart contracts, and managed
  collectively by its users/nodes on the
  blockchain. But there are more than one
  type of decentralized exchanges, and the
  exact working of the platform depends on its
  type.
• Types of Decentralized Exchanges
• At the most basic level, there are three types of
  decentralized exchanges
• On-Chain Exchanges
• These exchanges exist completely on the
  blockchain. All the stages of the exchange
  process are conducted on-chain. This makes it
  very slow. Due to the limited transaction
• speeds of blockchain (15 TPS in the case of
  ethereum), users will not be able to see the
  exchange completed until a miner writes
  that transaction on a block. Apart from
  the significant amount of time this takes, the
  blockchain will also charge a fee for conducting
  such a transaction completely on chain.
• Hybrid Exchanges
• A comparatively less decentralized
  alternative to on-chain exchanges are
  hybrid exchanges. The order book for these
  exchanges is stored off-chain on the
  platforms
• own database, and this makes them slightly
  more centralized. But this also results in
  better speeds and a more smooth process.
• AMM-based Exchanges
• A completely different variant of
  decentralized exchanges is the ones
  based on Automated Market Makers (AMM). Now
  AMMs are a complicated tool to understand, but at
  the most basic level, they are
  automated determinants of the market
  price of exchanged assets that dont require
  order books. Instead they use liquidity
  pools to determine the value of each asset. AMMs
  are also completely decentralized entities and
  also subscribe to DeFis ideal of a trustless
  financial system.
• Conclusion

exchanges contribute toward the futuristic
concept of a completely decentralized of finance
that
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we here at Antlia are working to achieve.
The concept is still in its infancy, and
will require a number of improvements before it
becomes part of the mainstream crypto market.