How Are Smart Contracts Used to Create Decentralized Exchanges (DEXs) for Cryptocurrency Trading?
DEXs use smart contracts to manage all aspects of trading, including order matching, trade execution, and asset custody. The contract holds the liquidity and facilitates token swaps directly between users' wallets without a central authority.
This non-custodial approach means users retain control of their funds until the trade is executed. Automated Market Makers (AMMs) are a common type of DEX relying entirely on smart contract logic.
Glossar
Smart Contract
Code ⎊ The contract is fundamentally self-executing code deployed on a distributed ledger, embodying the terms of the agreement in an immutable format.
Smart Contracts
Function ⎊ Smart contracts are self-executing agreements with the terms of the agreement directly written into lines of code, residing on a decentralized ledger.
Clearing and Settlement
Finality ⎊ Clearing and settlement, within cryptocurrency, options, and derivatives, represents the process ensuring the irreversible transfer of assets and associated risk mitigation.
Token Swaps
Swap ⎊ Token swaps, within the convergence of cryptocurrency, options, and derivatives, represent a structured exchange of tokens, often involving distinct blockchain networks or protocols.
Automated Market Makers
SystemArchitecture ⎊ Automated Market Makers represent decentralized trading protocols that utilize algorithmic functions, rather than traditional bid-ask order books, to facilitate peer-to-contract asset exchange.
Decentralized Exchanges
Access ⎊ These platforms offer permissionless entry to cryptocurrency and tokenized asset markets, democratizing capital deployment into novel financial structures.