2025 Decentralized Exchange Market Overview and Investor Must-Read Guide

Rapid Growth of On-Chain Finance: Why the DEX Market Is Gaining Attention

The “Decentralized Finance(DeFi)” craze is spreading in the cryptocurrency market. In particular, the growth of decentralized exchanges(DEX) is remarkable. In October this year, DEX trading volume hit a record high of $1.36 trillion, accelerating the shift toward on-chain finance. This indicates that investors are recognizing the risks of traditional centralized exchanges and seeking alternatives.

What Is a DEX: Fundamental Differences from Centralized Exchanges

Decentralized exchanges(DEX) are trading platforms without a central management organization like banks or securities firms. Transactions occur directly between individuals(P2P) through smart contracts—programmed agreements.

Key Differences Between CEX and DEX:

• Centralized Exchange(CEX): The exchange holds user assets and mediates trades
• Decentralized Exchange(DEX): Users manage their private keys directly, trading without third-party intervention

The long-standing adage in the crypto community, “Not your keys, not your coins(Not your keys, not your coins)”, emphasizes that true ownership depends on one’s ability to control private keys.

How DEX Works: Three Main Models

DEXs are classified into three types based on their operating mechanisms.

1. AMM(Automated Market Maker) Model Liquidity pool-based exchanges like PancakeSwap and Uniswap. Users deposit assets into liquidity pools, and smart contracts automatically calculate prices and execute trades. Similar to yield rates that change over time, like Ethereum or fixed deposit interest rankings, returns vary with trading volume and volatility.

2. On-Chain Order Book Model All trading orders are recorded directly on the blockchain, offering high transparency. However, this approach is slow and costly in gas fees, so most are built on Layer 2 or dedicated blockchains. Examples include dYdX v4 and Hyperliquid.

3. Off-Chain Order Book Hybrid Model Trade orders are processed on centralized servers, with only final executions recorded on the blockchain. This improves speed and reduces costs. The 0x protocol exemplifies this model.

The Background of DEX Birth: Risks of Centralized Exchanges

The emergence of DEXs is due to structural flaws in CEXs. The biggest vulnerability of CEXs is centralizing all user assets and data on a single server, making them attractive targets for hackers.

Real-world example: In February 2025, one major global exchange was hacked by an alleged North Korean hacker group, resulting in the theft of $1.4 billion worth of Ethereum. In the first half of this year alone, market damages from hacking exceeded $2.1 billion.

Structural issues of CEXs:

• Single Point of Failure(Single Point of Failure): A vulnerability in one point can collapse the entire system
• Loss of Asset Control: Depositing assets into an exchange means losing actual control
• No Deposit Insurance: Unlike traditional finance, there are no asset protection mechanisms
• Lack of Operational Transparency: No insight into internal asset management or reserve status

How DEXs Address These:

• Users retain full control of assets by managing private keys
• All transactions are transparently recorded on the blockchain for verification
• Accessible freely via the internet without KYC
• Eliminates risks of account freezing due to political or economic reasons

Clear Advantages and Practical Limitations of DEXs

(Advantages

Transparency and Monitoring All transactions occur on-chain, allowing anyone to verify trading history in real-time. Price manipulation or fraudulent activities by exchanges are fundamentally impossible.

Full Asset Control Managing private keys directly prevents hacking, exchange bankruptcy, or fund freezing risks. It also reduces concerns over censorship and personal data leaks.

Diverse Asset Options Unlisted new tokens can be traded by creating liquidity pools, offering various investment opportunities.

)Disadvantages

Liquidity Shortages and Slippage Compared to centralized exchanges, DEXs often have less liquidity, which can lead to unfavorable prices during large trades.

Smart Contract Risks Vulnerabilities in code or unverified projects pose hacking risks. Protocols may also change unpredictably through governance votes.

Heavy Personal Responsibility Losing your private key means permanently losing access to assets. All asset management responsibility lies with the user.

Inconvenience for Korean Investors Since DEXs cannot directly deposit or withdraw Korean Won, users must:

1. Purchase KRW via domestic exchanges using fast coins like Ripple or Tron
2. Transfer to personal wallets like MetaMask
3. Swap for desired tokens on DEX

Each step requires careful verification of network addresses to prevent asset loss.

Market Status of DEX in November 2025: Who Leads?

Currently, the DEX market is dominated by PancakeSwap on BNB Chain. Its low gas fees, fast transactions, and user-friendly interface are key reasons.

Notable Points: Once a market leader, Uniswap’s trading volume is now spread across multiple chains and versions. Meteora and Raydium in the Solana ecosystem are growing rapidly, attracting meme coin traders with their user-friendly interfaces, near-instant transaction processing, and low fees.

How Beginner Investors Should Choose DEX Tokens

Start with well-established platforms with high market share when investing in DEX governance tokens.

PancakeSwap CAKE Token Suitable for beginners due to its various uses: staking, liquidity mining, launchpad participation. You can earn additional yield through syrup pools, and regular token burns create deflationary pressure.

Uniswap UNI Token Most stable in market cap and liquidity. Offers governance rights to vote on platform proposals and parameter changes. Future fee-sharing mechanisms may provide additional income.

dYdX DYDX Token Adopts a community-centric approach, offering governance voting and trading discounts. All protocol fees are reinvested into the ecosystem, making it suitable for long-term investors betting on growth rather than short-term gains.

Before Investing, Always Check:

• Project whitepapers and audit reports
• Governance structure and token distribution
• Avoid investing in new or unaudited tokens solely based on high APY, as it involves risks

DEX Investment Checklist: Common Mistakes Beginners Should Avoid

( Step 1: Verify Project Information Thoroughly

• Confirm the official contract address of the token
• Prefer verified platforms like PancakeSwap, Uniswap
• Watch out for suspicious patterns like inconsistent trading volume or lack of sell orders

) Step 2: Secure Private Keys and Seed Phrases

• Never store seed phrases online; write them on paper
• Use self-custody wallets like MetaMask
• Conduct small test transactions to verify network before full trading

Step 3: Slippage and Gas Fee Strategies

Slippage Settings:

• Typically set between 0.5% and 1%
• For volatile tokens, adjust up to 2-3%
• Too high causes unfavorable prices; too low may cause transaction failure

Reducing Gas Fees:

• If Ethereum mainnet is expensive, choose low-cost networks like BSC, Arbitrum, Polygon
• Compare network fees beforehand, as they vary significantly

Step 4: Be Extra Cautious When Using Cross-Chain Bridges

• Confirm network addresses carefully when transferring assets between different blockchains
• Sending to the wrong network is nearly unrecoverable

Step 5: Entry Strategy for Korean Investors

Since direct KRW deposits/withdrawals are unavailable on DEXs:

1. Purchase KRW on domestic exchanges using fast coins like Ripple or Tron
2. Transfer to personal wallets like MetaMask
3. Swap for desired tokens on DEX

Careful verification of network addresses at each step is essential to prevent asset loss.

Conclusion: The DEX Era Requires Wise Choices

Repeated hacking incidents at centralized exchanges have increased investor interest in DEXs. However, beginners must overcome hurdles like slippage management and private key security.

For successful DEX investing:

• Conduct thorough project verification
• Maintain heightened security awareness
• Implement systematic risk management

Learn about DEXs and gain hands-on experience to truly enjoy financial sovereignty.