A Decentralized Exchange (DEX) does not take custody of users' funds when executing a trade. Unlike centralized exchanges (CEXs), where the exchange controls the funds during transactions, DEXs operate on a peer-to-peer basis, enabling trading directly between users. Transactions on a DEX are facilitated through smart contracts on the blockchain. When you trade on a DEX, the private keys in your wallet connect to a smart contract which executes the trade on the blockchain. Your wallet holds the keys to the crypto you own on the blockchain. Your crypto is never owned or held in custody by a CEX or any other third-party financial institution. This setup means you maintain control of your funds throughout the transaction process.
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