// GLOSSARY -- DEFI

What is DEX (Decentralized Exchange)?

1 min read Updated

A Decentralized Exchange (DEX) is a peer-to-peer marketplace built on smart contracts enabling direct cryptocurrency trading without a centralized intermediary.

WHY IT MATTERS

DEXs reimagine trading. Instead of depositing to a centralized exchange, you trade from your wallet. Instead of a company matching orders, smart contracts handle execution.

The dominant model is AMMs (Automated Market Makers) like Uniswap. Order book DEXs (dYdX) more closely resemble traditional exchanges. DEXs handle billions in daily volume.

DEXs are core DeFi infrastructure — enabling permissionless trading, price discovery, and the liquidity other protocols build on.

HOW POLICYLAYER USES THIS

AI trading agents on DEXs need precise controls. PolicyLayer enforces which DEXs agents can use, maximum trade sizes, allowed pairs, and slippage limits — preventing trades that violate risk parameters.

FREQUENTLY ASKED QUESTIONS

How do DEXs set prices?
AMMs use mathematical formulas (constant product for Uniswap). Prices adjust based on pool token ratios. Order book DEXs match buy/sell orders like traditional exchanges.
What is impermanent loss?
When LP deposited tokens diverge in price, the pool rebalances unfavorably vs holding. 'Impermanent' because it reverses if prices return, but it's often permanent.
DEXs vs centralized exchanges?
DEXs: non-custodial, permissionless, transparent. CEXs: faster, deeper liquidity, better UX. Many users use both for different purposes.

FURTHER READING

Enforce policies on every tool call

Intercept is the open-source MCP proxy that enforces YAML policies on AI agent tool calls. No code changes needed.

npx -y @policylayer/intercept
github.com/policylayer/intercept →
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