DEX (Decentralized Exchange)

CEX (Centralized Exchange)

A cryptocurrency exchange operated by a company that acts as an intermediary between buyers and sellers, holding users' funds in its custody. Centralized exchanges like Coinbase and Binance typically offer higher liquidity, faster trades, and user-friendly interfaces compared to decentralized alternatives. However, users must trust the exchange with their assets and usually complete identity verification to comply with regulations.

Liquidity Pool

A collection of cryptocurrency funds locked in a smart contract that provides liquidity for decentralized trading, lending, or other DeFi activities. Users who contribute assets to a liquidity pool are called liquidity providers and earn a share of the trading fees generated by the pool. These pools are essential for DEXs to function because they replace the traditional order book model used by centralized exchanges.

Smart Contract

A self-executing program stored on a blockchain that automatically enforces the terms of an agreement when predetermined conditions are met. Smart contracts eliminate the need for intermediaries by running code that is transparent and cannot be altered once deployed. They are the foundation of DeFi applications, NFTs, and many other blockchain-based services.

Slippage

The difference between the expected price of a trade and the actual price at which it is executed, usually caused by low liquidity or high market volatility. In DeFi, slippage commonly occurs when trading on DEXs because the price can shift between the time you submit a transaction and when it is confirmed. Most DEXs allow you to set a slippage tolerance to prevent trades from executing if the price moves beyond an acceptable range.