Understanding Contract-Based DEX Platforms and Their Role In Crypto

A decentralised exchange (or “DEX”) is an online platform where users trade directly with each other without the assistance of a central server. This allows users to trade anytime, from anywhere, and without being dependent on the platform. In this post, we’ll explain what a DEX is and how it works for cryptocurrency traders.

How Does a DEX make Money?

When you use a DEX, you are not using the centralised servers of an exchange like Coinbase or Kraken. Instead, you are connecting directly with other users through a P2P network. This means there is no middleman taking a cut out of your trades. When you trade on a DEX, you will notice your trades go through almost instantly. This is because there is no need for a third party to verify your account balances and authorize your trades.


However, this lack of a middleman comes at a cost. Since there is no one in charge of a DEX to regulate and control the platform, there may be times when there are insufficient funds in your trading account to cover your pending orders. In this case, the DEX will attempt to collect money from you in order to pay for the orders that were placed but not yet filled. This is called “failing to deliver.” It’s important to know how a DEX handles failing to deliver so you can make an intelligent decision about whether or not to use this type of trading platform.

The Cardano DEX

The Cardano blockchain has a built-in smart contract system that allows it to process trades without the need for a third party. This means there is no one to “collect” money from users who have not received their cryptocurrency after they’ve traded on the platform. The Cardano blockchain also includes a reputation system that users can earn or lose based on their actions on the network. This reputation system is what allows the Cardano DEX to function with no middlemen and no collection of funds from users. Here is how it works: When you place an order to buy or sell cryptocurrency on the DEX, it will be entered into a smart contract on the Cardano blockchain. 

After that, all other users on the network will be notified about your order. They will then have the ability to either fill your order by sending you the cryptocurrency you have requested or reject your order. If they reject your order, they will send you back your original cryptocurrency along with a small amount of “failing to deliver” cryptocurrency. This failing to deliver cryptocurrency is only a fraction of the total amount you had to pay for your original trade