How to use decentralized exchanges? (DEX trading)

Connecting Your Wallet to a DEX

1. Choose a non-custodial wallet compatible with the target blockchain—MetaMask for Ethereum, Phantom for Solana, or Keplr for Cosmos-based networks.

2. Install the wallet extension or mobile app and securely back up your seed phrase—never share it with anyone.

3. Fund your wallet with the native token of the chain—ETH for Ethereum, SOL for Solana, or ATOM for Cosmos—to cover gas fees.

4. Navigate to the DEX interface—Uniswap, PancakeSwap, or Curve—and click “Connect Wallet” in the top-right corner.

5. Select your wallet from the list, approve the connection request, and confirm the signature in your wallet interface.

Understanding Liquidity Pools and Token Swaps

1. DEXs rely on automated market makers (AMMs) instead of order books—prices derive from mathematical formulas embedded in smart contracts.

2. Each trading pair corresponds to a liquidity pool where users deposit equal values of two tokens to earn trading fees.

3. When swapping tokens, you interact directly with the pool—slippage tolerance must be set manually to prevent unfavorable execution during volatility.

4. The output amount is calculated in real time using the constant product formula x × y = k, where x and y represent reserve balances.

5. Transaction confirmation requires signing via your wallet and waiting for block inclusion—Ethereum may take 10–30 seconds, while Solana confirms in under a second.

Providing Liquidity Safely

1. Navigate to the “Pool” tab on the DEX interface and select an existing pair or create a new one if permitted by the protocol.

2. Approve token spending for both assets separately—this is a one-time permission per token per contract.

3. Enter the deposit amounts aligned with the current pool ratio—deviations trigger warnings or rejection.

4. Review the share percentage you’ll receive and the projected APR based on fee accrual and pool volume.

5. Confirm the transaction; LP tokens will appear in your wallet as proof of your proportional ownership in the pool.

Managing Impermanent Loss and Fees

1. Impermanent loss occurs when deposited token prices diverge significantly from the time of deposit—loss is realized only upon withdrawal.

2. Fee income partially offsets impermanent loss, especially in high-volume pools with stable price ratios.

3. Each swap incurs a protocol fee—typically 0.05%, 0.3%, or 1%—distributed proportionally to liquidity providers.

4. Gas costs vary across chains: Ethereum mainnet fees remain volatile, while Arbitrum and Base offer sub-$0.10 swaps.

5. Some DEXs impose additional charges for advanced features like limit orders or concentrated liquidity positions.

Frequently Asked Questions

Q: Do I need KYC to trade on a DEX? A: No. Decentralized exchanges do not require identity verification—access is permissionless and pseudonymous.

Q: Can I trade tokens that aren’t listed on centralized exchanges? A: Yes. Any ERC-20, BEP-20, or SPL token with sufficient liquidity can be traded if its contract address is known and supported by the DEX.

Q: What happens if a DEX’s smart contract has a bug? A: Users bear full risk—funds locked in compromised contracts may be unrecoverable without community-led upgrades or multisig interventions.

Q: How do I verify a token’s authenticity before swapping? A: Cross-check the contract address on Etherscan, BscScan, or Solscan against official project channels—never trust links from DMs or unverified websites.