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- Mega DeFi Edition Part Two š
Mega DeFi Edition Part Two š
Decentralized Exchanges, Automated Market Markets, and more
DEFI
Mega DeFi Edition Part Two š

Welcome to day two of the Mega DeFi Edition of the Litepaper. š«
Todayās focus is on Decentralized Exchanges (DEXs) and the various Automated Market Makers (AMMs) that make DEXs work. Weāll also hit on DEX aggregators.
DEXs
Decentralized Exchanges: Your Direct Ticket to Peer-to-Peer Trading š§āš§
Letās dive into the world of Decentralized Exchanges (DEXs). Essentially, DEXs let you trade your favorite crypto tokens directly with other folksāno middlemen, no long-winded sign-up process, no āwe regret to inform youā emails shutting you down. Instead, DEXs run on smart contracts (bits of code on the blockchain) that automatically handle trades once you confirm them.
Hereās the best part: your coins stay in your own wallet until the very last click. Unlike on a centralized exchange (CEX), thereās no big corporate entity babysitting your crypto (and no separate deposit address you have to trust). Youāre in charge from start to finish. š
DEXs
Why Bother With a DEX? š¤
You Keep Your Keys
Ever heard āNot your keys, not your cryptoā? Thatās basically the DEX mantra. On a DEX, you hold onto your tokens until the second you confirm a trade. No handing them over to a corporate exchange wallet that might get hacked or go bankrupt.Censorship Resistance
Since DEXs are built on decentralized networks, itās way harder for one personāor one governmentāto shut them down or tell them which tokens they can list. If you have an internet connection, youāre (mostly) good to go.No Borders, No Permission Slips
While local regulations can still vary, the spirit of a DEX is global and open to everyone. Thereās no 20-page sign-up form, no waiting for your account to get āapproved.ā Itās like stepping into a global crypto bazaar, free to browse as you please.Community-Driven Innovation
Most DEXs are open-source, meaning the code is out there for people to inspect, clone, and improve. This makes it easier for new features to pop upāand for the community to keep pushing the envelope.
DEXs
So, How Do DEXs Actually Work? š¤·
Automated Market Makers (AMMs) š¤
Chances are, if youāve used a DEX like Uniswap, SushiSwap, or PancakeSwap, youāve run into an AMM (Automated Market Maker). This is a fancy way of saying there are liquidity pools (imagine big community piggy banks full of two different tokens) that users like you and me can deposit our tokens into. In return for contributing, you earn a slice of the trading fees.
Liquidity Pools in a Nutshell:
Letās say you have ETH and DAI. You throw them both into the ETH-DAI pool. When someone comes along to swap ETH for DAI, they take a bit of your DAI and leave ETH behind. The poolās algorithm recalculates the exchange rate based on whatās left inside. And you get a portion of the trading fees for playing along!Swaps Without Middlemen:
With AMMs, thereās no ābig exchangeā matching your buy or sell order with someone elseās. You just trade directly against that shared pool of tokens. Simple, streamlined, and no need to beg for a specific trading pair to be listed.
Order Book DEXs šļø
Not every DEX uses liquidity pools. Some rely on order booksābasically a list of all the buy and sell offers. Traditional centralized exchanges also do this, but on DEXs, it happens on-chain (or partially on-chain). This can be pricier on certain blockchains, but new tech solutions (like layer-2s) are making it more feasible.
DEX Aggregators šÆ
1inch, ParaSwap, and others are known as DEX aggregators. They check a bunch of different DEXs at once to score you the best deal on your trade. Itās like a travel site that compares flights across airlines so you donāt have to hunt for the best price on your own.