As opposed to managed “order books” that are run by brokers, decentralized exchanges utilize a set of smart contracts to establish the prices of various cryptocurrencies against each other algorithmically.
Liquidity pools that are funded by users of the platform and other market makers are harnessed to facilitate trades, with portions of the trading fees being redirected to the liquidity providers as a reward for the risks involved with providing liquidity.
DEX exchanges or transactions are recorded directly on the underlying blockchain that they operate on, meaning anyone can view and verify any trade that takes place. Most DEXs are built with open source code, meaning developers can adapt existing code to create new competing projects. This is the mechanism by which multiple spinoffs of the Uniswap interface have appeared on DEXs across the crypto ecosystem, including SushiSwap, QuickSwap, and PancakeSwap.
Learn more aboud DEXs in our article here.