What Is DEX (Decentralized Exchange)?

A DEX (Decentralized Exchange) is a smart contract protocol that lets you trade crypto assets peer-to-peer without trusting a central company with your funds. Unlike CEXs (Coinbase, Kraken), DEXs use Automated Market Makers (AMMs) where liquidity providers deposit token pairs into liquidity pools, and algorithms set prices based on supply and demand.

Why DEXs Matter for Airdrop Farming

Airdrop farmers live on DEXs. When a new token launches—whether it's an L2 like Arbitrum or a points program converting to tokens—you'll swap into it on a DEX first. Uniswap is the obvious example: it's where millions of farmers rushed to buy ARB tokens after the Arbitrum airdrop snapshot. DEXs are also where you exit positions when farming becomes unprofitable, or rotate capital between farming opportunities on different chains.

Practical Examples

Uniswap on Ethereum is the largest DEX by volume. After the Arbitrum airdrop, farmers used Uniswap to swap ETH for ARB immediately. Hyperliquid operates as both a DEX and perpetuals exchange, letting you trade spot tokens or leverage trade, which is useful if you're trying to amplify farming yields. On Jito, Solana farmers trade through the DEX to access liquid staking tokens (JitoSOL) that generate additional yield on top of baseline farming.

The Mechanics

When you use a DEX, you're interacting with liquidity pools. Swap 1 ETH for USDC? Your ETH goes into the pool, USDC comes out, and the pool's price adjusts. This introduces impermanent loss if you're providing liquidity as a farmer—the reason many airdrop hunters avoid liquidity farming and just farm tokens for points or airdrops instead.

DEX activity also generates gas fees that cut into farming profits, especially on Ethereum. This is why layer-2 DEXs matter: Arbitrum and Optimism DEXs have lower fees, making it economical to farm small positions. Always check TVL and slippage on a DEX before swapping—low liquidity means you'll lose money on the trade itself.