How Do Decentralized Exchanges (DEXs) Utilize Smart Contracts to Bypass Traditional Brokers?

DEXs use smart contracts to create liquidity pools and execute trades directly between users' wallets, a process known as peer-to-peer trading. The contract replaces the traditional broker and the central exchange's order book, managing the pool of assets and executing swaps based on pre-programmed algorithms like Automated Market Makers (AMMs).

This eliminates the need for a trusted third party to hold funds or manage the trade lifecycle.