A decentralized exchange or DEX is an exchange that leverages blockchain technology and smart contracts to connect traders to buy and sell cryptocurrencies peer-to-peer. DEXs are different from traditional centralized exchanges (or CEXs) because they do not require the use of intermediaries or order books to match and process trades between a buyer and a seller.Instead, DEXs rely on blockchain technology, in addition to a combination of smart contracts, price oracles, liquidity pools and automated market maker programs, to enable buyers and sellers to exchange crypto in an open and permissionless manner, while maintaining efficient price discovery. These are the 4 key components of a decentralized exchange:
Through your primary Coinbase account, using your dapp wallet, you can now access a variety of tokens that are only tradable on DEXs such as Uniswap, Sushiswap, Curve, Balancer and others.
How does trading on a DEX differ from trading on Coinbase?
We built the Trade on DEX feature to give our customers the ability to facilitate trades through various decentralized exchanges. This enables you to convert certain ERC-20 tokens even if they aren’t listed on Coinbase yet. When you use this feature, you are trading on a decentralized protocol that is not operated by Coinbase. As a result, there are a few important things to know:
When you use this feature, the transaction will take place in your dapp wallet.
For each trade you make on a DEX, there is a network (or gas) fee paid to the Ethereum network. Coinbase does not profit from this network fee.
When you execute a trade for the first time, you’ll need to approve the tokens from your dapp wallet to be spent, which means you are authorizing the DEXs smart contract to spend those tokens from your wallet. This action can only be conducted by the person who owns the wallets private keys. Approving a token costs a small network fee paid to the Ethereum network. Coinbase does not profit from this network fee.
Most ERC-20 tokens are available to trade using this DEX feature. However some may be unavailable due to either geographic or other restrictions. Coinbase support is unable to provide details on why specific tokens are restricted.
At this time, Coinbase only supports DEX trading on the Ethereum network and does not support any other blockchains or L2 networks.
A variety of DEXs are used to facilitate a transaction, including Uniswap & 1inch. Coinbase support is not able to provide you with the name of the DEX used for a specific transaction.
When you make a trade on a DEX, it takes place on the Ethereum blockchain and as a result may take between 5-45 minutes to complete.
Coinbase is not responsible for activity or assets traded through a DEX.