Understanding Decentralized and Centralized Exchanges
Before the rise of decentralized exchanges (DEX), trading cryptocurrency stored in a personal wallet required transferring funds to a centralized exchange (CEX). After completing a trade, users then had to transfer their assets back to their wallet for secure storage. This process was not only inconvenient but also incurred additional gas fees for both transactions.
A DEX operates using smart contracts deployed on a blockchain. These contracts lock tokens into liquidity pools, enabling buyers and sellers to trade directly with one another. Every transaction is recorded on the blockchain, making it immutable and transparent. This structure eliminates the need for a central authority to facilitate trades.
In contrast, a CEX requires users to deposit their assets into wallets controlled by the exchange. The platform then matches buy and sell orders internally. The ability to withdraw or trade these assets depends entirely on the credibility and operational status of the centralized institution.
The Advantage of Aggregated DEX Services
Modern wallet solutions now aggregate top DEX contracts across multiple blockchain networks. This allows users to swap tokens directly within their wallet interface, removing the need for transfers to external platforms. The result is a seamless, cost-effective, and secure trading experience without unnecessary intermediaries.
How to Buy Tokens via a Swap Function
Follow these steps to purchase cryptocurrency directly through your wallet’s swap feature:
Access the Swap Feature: Open your wallet application and select the blockchain network you wish to use. Then, navigate to the "Swap" or "Exchange" section.
- The swap interface will display a list of popular trading pairs. If the token you want to buy isn't visible, use the search function to find it.
Initiate the Trade: Select the token you wish to purchase. On the token's market page, tap the "Buy" button to proceed to the transaction screen.
- Ensure that the token you are buying and the token you are using for payment are on the same blockchain network; otherwise, the transaction cannot be processed.
Confirm Transaction Details: Enter the amount you want to spend. The interface will automatically display the estimated amount of tokens you will receive.
- Review important details such as the transaction fee, price impact, and slippage tolerance. You can usually adjust the slippage settings if needed.
- Once everything is correct, tap "Confirm."
Verify and Execute: A confirmation pop-up will appear showing the final exchange rate and network fee. Double-check all details.
- If everything is in order, proceed to the next step and authorize the transaction by entering your wallet’s security password or confirming with your private key.
- Your order will be submitted to the blockchain for processing.
Review the Transaction: After a successful trade, you can view its status in your transaction history. The details page will provide a hash ID that you can use to track the transaction on a blockchain explorer. A "Success" status indicates the on-chain transfer is complete.
- The newly acquired tokens will automatically appear in your wallet's asset list.
How to Sell Tokens via a Swap Function
The process for selling tokens is very similar to buying them:
- Select Asset to Sell: From your wallet’s main asset screen, choose the token you want to sell and ensure you are on the correct network for that asset. Tap on the token to view its detail page, then select "Swap."
Choose Receive Currency and Amount: On the swap screen, select which currency you want to receive (e.g., a stablecoin or the network's native gas token). Enter the amount of the token you wish to sell.
- The interface will show you the estimated amount you will receive. Carefully review the gas fee and slippage settings before proceeding.
Confirm and Authorize the Sale: Tap "Confirm" to review the final transaction summary. Confirm the gas fee and the exchange rate.
- Authorize the transaction by entering your password or biometric confirmation. The swap will be broadcast to the network.
- Transaction Completion: As with a purchase, you can monitor the transaction's progress in your history and on the blockchain explorer. Once confirmed, the sold tokens will be deducted from your wallet, and the new tokens will be added.
Frequently Asked Questions
What is the difference between a DEX and a CEX?
A Decentralized Exchange (DEX) allows users to trade directly from their personal wallets using smart contracts, with all transactions settled on-chain. A Centralized Exchange (CEX) requires users to deposit funds into the exchange’s custodial wallet, and trades are matched internally by the company’s order book.
Why did my cryptocurrency swap fail?
Swaps can fail for several common reasons: insufficient gas fees, setting the slippage tolerance too low during periods of high volatility, or a lack of available liquidity in the pool for your chosen trading pair. Always ensure you have enough native token to cover network fees.
Is it safe to trade on a DEX?
Trading on a well-established and audited DEX is generally considered safe because you retain custody of your assets throughout the process. However, always be aware of smart contract risks, impermanent loss in liquidity pools, and the potential for phishing scams on connected front-end websites.
What does 'slippage' mean?
Slippage refers to the difference between the expected price of a trade and the actual price at which it executes. It occurs due to market movement between the time a transaction is submitted and when it is confirmed on the blockchain. Setting a higher slippage tolerance can help transactions succeed in volatile markets but may result in a less favorable price.
Can I trade any token on a DEX?
You can trade any token that has been created on a blockchain and added to a liquidity pool. This includes a vast array of assets beyond what is listed on major CEXs. However, always conduct your own research (DYOR) on unknown tokens, as anyone can create them.
How do I get help if a transaction is stuck or fails?
If you encounter an issue, your first step should be to check the transaction status on a block explorer using its hash ID. For further assistance, you will need to contact the support team of the wallet or DEX interface you were using, as they cannot reverse on-chain transactions. You can explore more strategies for managing transaction issues on their official support pages.