Decentralized exchanges (DEXs) have the potential to revolutionize finance — but without solving their capital inefficiency issues, they will always struggle to keep up with their centralized counterparts.
Let’s be honest: Capital efficiency is the name of the game. It’s about making every dollar — or token, or coin — work as hard as possible.
Unlike CEXs, which have a more predictable liquidity structure, DEXs rely on independent liquidity providers (LPs) to contribute their assets to liquidity pools.
These pools act as shared reserves that facilitate trades on decentralized exchanges without the need for intermediaries. When traders execute a trade, they draw from these pools, paying a small fee to the LPs in return.
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