Decentralized exchanges (DEXs) work in decentralized finance (DeFi) through smart contracts and blockchain technology.

Here is how DEXs work in DeFi:

1. Peer-to-peer trading: DEXs allow users to trade directly with each other using smart contracts, eliminating the need for an intermediary or centralized authority.

2. Non-custodial trading: Users retain control of their funds throughout the trading process, as they are never held by the exchange. Instead, funds are held in their own wallets and are only swapped once the trade is confirmed by the blockchain.

3. Automated market-making: DEXs use automated market-making algorithms to provide liquidity for trading pairs. This means that users can trade assets instantly at any time, without having to wait for a counterparty to make a trade.

4. Decentralized order books: In DEXs, order books are managed by smart contracts on the blockchain, removing the need for a central server to match buyers and sellers.

5. Permissionless trading: Anyone can use a DEX without needing to go through a registration or KYC process, as long as they have a compatible wallet.

Overall, decentralized exchanges offer users greater security, privacy, and control over their assets compared to centralized exchanges. They also contribute to the growth and development of the DeFi ecosystem by promoting decentralization and censorship resistance.
Decentralized exchanges, or DEXs, play a crucial role in the world of decentralized finance (DeFi). These platforms allow users to trade cryptocurrencies and other digital assets directly with one another without the need for a centralized intermediary.

So, how do decentralized exchanges work in DeFi?

Unlike traditional centralized exchanges, which require users to deposit their funds into a centralized wallet controlled by the exchange, DEXs operate on blockchain technology. This means that users retain control of their funds throughout the trading process.

When a user wants to make a trade on a DEX, they connect their digital wallet to the exchange using a web browser or a decentralized application (dApp). Through this connection, users can access the exchange's order book, which lists all the buy and sell orders currently available on the platform.

When a trade is initiated, the user's digital wallet signs the transaction using their private key, and the trade is executed on the blockchain. This eliminates the need for a centralized authority to approve the transaction, making the process faster and more secure.

One of the key features of DEXs is the use of automated market makers (AMMs) to facilitate trades. AMMs are smart contracts that automatically match buy and sell orders based on a predetermined algorithm. This allows users to trade directly with the liquidity pool, rather than with other users.

Another important aspect of DEXs is their support for decentralized finance protocols. Many DEXs integrate with DeFi protocols to offer advanced features such as lending, borrowing, and yield farming. This allows users to maximize their returns by participating in various DeFi activities directly from the exchange platform.

In summary, decentralized exchanges in DeFi work by leveraging blockchain technology to enable peer-to-peer trading without the need for a centralized intermediary. By using smart contracts and automated market makers, DEXs provide users with a secure and efficient way to trade cryptocurrencies and access DeFi services.