An exchange that runs as smart contracts on a blockchain, matching trades from liquidity pools rather than an order book, with no custodian.
On a DEX such as Uniswap you trade from your own wallet against pooled liquidity. Prices come from a formula, so large trades move the price (slippage) more than on a deep cex. You pay a gas-fee to the network for each trade.
There is no kyc and no one to call if you send tokens to the wrong address.
Example: swapping $50,000 of a small token on a DEX with $500,000 in its pool moves the price roughly 10%, a slippage cost that would be a fraction of that on a liquid centralized exchange.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Slippage on a market order. You click at 20.00, but only 300 shares are resting there, so the rest of the order fills at 20.01, 20.03 and 20.04. The average price paid is 20.02, and that two-cent gap is slippage.
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