DEX: Never Truly Understood

In the crypto financial system, DEX has always played an intriguing role. It seems to be always online, with no downtime, no censorship, and no exit scams, but it has long been on the fringes: the interface is complex, liquidity is insufficient, and there is a lack of narrative, making it neither the center of hot topics nor the first choice for projects. When DeFi exploded, it was an alternative to CEX; during bear markets, it became the "DeFi legacy" focusing on "security and self-custody." As the industry's focus shifts to new narratives like public chains, AI, RWA, and inscriptions, DEX appears to have lost its sense of presence.

However, in the long run, DEX has been quietly growing and beginning to shake the underlying logic of on-chain finance. Uniswap is just one of its historical nodes, while Curve, Balancer, Raydium, and Velodrome are its transformations. The evolution of all AMMs, aggregators, and L2 DEXs is driven by the self-evolution process of the underlying distributed finance.

This article attempts to step out of the perspectives of "product comparison" and "track trends", reviewing the historical context and sorting out the structural evolution logic of DEX:

• How DEX has evolved from on-chain tools to structural logic
• How it absorbs the financial mechanisms and ecological goals of different eras.
• Why, when talking about project cold starts and community self-organization today, do we still have to mention DEX?

This is the evolution of DEX, as well as a structural observation of the "function spillover" of decentralization. We will explore an increasingly unavoidable question: why does every project revolve around DEX when discussing Web3?

1. A Brief History of DEX in Five Years: From Marginal Role to Narrative Center

1. First Generation DEX: A Decentralized Expression ( EtherDelta Era )

Around 2017, when centralized exchanges were booming, a group of crypto geeks quietly launched the EtherDelta experiment on the blockchain. Compared to CEXs like Binance and OKEx, the user experience of EtherDelta was disastrous: it required manually entering complex on-chain data, had high interaction delays, and a primitive interface, which deterred ordinary users.

However, the birth of EtherDelta was not for convenience, but to completely get rid of "centralized trust": users have full control over their trading assets, and order matching is completed on the Ethereum chain without the need for intermediary custody and third-party trust. Ethereum founder Vitalik Buterin has publicly expressed his expectations for this model, believing that on-chain decentralized trading is one of the true practical applications of blockchain.

Although EtherDelta eventually faded from view due to technical and user experience issues, it left an important mark in the history of blockchain: DEXs are no longer just trading tools, but have become a practical expression against centralization. It planted the genetic seeds for future platforms like Uniswap, Balancer, and Raydium: user asset custody, on-chain order matching, and trustless custody, which have become the foundational framework for the continuous evolution, derivation, and expansion of DEXs.

2. Second Generation DEX: A Paradigm Shift in Technology ( The Emergence of AMM )

If EtherDelta represents the "first principles" of decentralized trading, then the birth of Uniswap has provided a scalable realization path for this ideal for the first time.

In 2018, Uniswap released v1, which introduced the automatic market maker ( AMM ) mechanism on-chain for the first time, completely breaking the limitations of the traditional order book matching model. Its core trading logic x * y = k is simple yet revolutionary, allowing liquidity pools to price automatically without the need for counterparties or orders. By simply depositing one asset into the pool, you can automatically obtain another asset according to a constant product curve. No counterparties, no orders, no matching; trading behavior is equivalent to pricing behavior.

The breakthrough of this model lies in that it not only solves the problem of "no orders available" for trading in early DEXes but also fundamentally changes the source of liquidity for on-chain trading: anyone can become a liquidity provider ( LP ), injecting assets into the market and earning transaction fees.

The success of Uniswap has inspired the innovation of other AMM mechanism variants:

• Balancer introduces multi-asset + custom weight pools, allowing projects to set their own asset weights and distributions.
• Curve addresses the high slippage issue for stablecoins by designing optimized curves to achieve lower-cost asset swaps.
• SushiSwap adds token incentives and governance mechanisms on top of Uniswap, initiating the narrative of "liquidity mining + community sovereignty".

These variants drive AMM DEX into the "protocol productization" stage. Unlike the first generation of DEX, which was primarily driven by concepts and had a rough form, the second generation of DEX has shown a clear product logic and a closed loop of user behavior: it not only enables trading but also serves as the structural foundation for asset circulation, the entry point for users to participate in liquidity, and even a part of project ecosystem initiation.

Starting with Uniswap, DEX has truly become a "product" that can be used, grown, and accumulate users and capital for the first time - no longer just a byproduct of concept implementation, but rather starting to become the very builder of the structure.

3. Third Generation DEX: From Tool to Hub, Function Expansion and Ecological Integration

After entering 2021, the evolution of DEX began to break away from a single trading scenario, entering a "fusion stage" where functional overflow and ecological integration run in parallel. DEX is no longer just a "place to exchange currencies," but is gradually becoming the liquidity core of the on-chain financial system, an entry point for project cold starts, and even a dispatcher of ecological structures.

One of the most representative paradigm shifts during this period is the emergence of Raydium. Raydium was born on the Solana chain, making the first attempt to deeply integrate the AMM mechanism with on-chain order book depth. It not only provides liquidity pools based on constant product but also synchronizes trades to Serum's on-chain order book, forming a liquidity structure that coexists with "automated market making + passive orders". This model combines the simplicity of AMM with the visible price hierarchy of order books, significantly enhancing capital efficiency and liquidity utilization while maintaining on-chain autonomy.

The structural significance of Raydium lies in the fact that it is not just "AMM optimization", but rather a distributed reconstruction that attempts to introduce "CEX experience" on-chain for the first time in DEX. For new projects in the Solana ecosystem, Raydium is not just a trading venue, but also a launch pad – from initial liquidity to token distribution, order book depth, and project exposure, it serves as a hub for primary issuance and secondary trading.

At this stage, the functionality explosion goes far beyond Raydium:

• SushiSwap adds trading mining, governance tokens, community governance, and "Onsen" incubation pools on the Uniswap model, forming a governance-based DEX ecosystem.
• PancakeSwap integrates features like blockchain games, NFT markets, and on-chain lotteries to achieve DEX platform operations on the BNB Chain.
• Velodrome(Optimism) introduces a "protocol inter liquidity scheduling" based on the veToken model, making DEX a coordinator between protocols rather than just serving users.
• Jupiter acts as a path aggregator in the Solana ecosystem, connecting multiple DEXs and asset paths, becoming a true "on-chain cross-protocol aggregator."

The common feature of this stage is that DEX is no longer the endpoint of the protocol, but rather a relay network that connects assets, projects, users, and protocols. It must bear the "terminal interaction" of user transactions, incorporate the "initial traffic" of project issuance, and at the same time interface with a complete set of on-chain behavior systems such as governance, incentives, pricing, and aggregation.

The DEX has since broken free from the "Isolated Protocol" identity and has become a hub node ( in the DeFi world—an on-chain consensus component with high adaptability and high composability.

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) 4. Fourth Generation DEX: Transformative Growth in the Multi-chain Deluge, is Aggregation, L2, and Cross-chain Experiments.

If the evolution of the first two generations of DEX was a mutation of the technical paradigm, then the third phase of Raydium is an attempt to splice functional modules. Starting from 2021, DEX has entered a more difficult-to-classify phase: it is no longer a "version upgrade" led by a specific team, but rather the entire on-chain structure compels it to undergo adaptive transformation.

The first to feel this change are the DEXs deployed on Layer 2. After the launch of Arbitrum and Optimism mainnets, the high Gas costs on Ethereum are no longer the only option, and the Rollup structure has become the soil for the growth of the new generation of DEXs. GMX on Arbitrum adopts an oracle pricing + perpetual contract model, responding to the issue of "AMM not being sufficient to solve depth" with a minimalist path and a structure without LP pools. Meanwhile, on Optimism, Velodrome attempts to establish a governance coordination mechanism for liquidity incentives between protocols using the veToken model. These DEXs are no longer pursuing universality but instead are rooted in specific chains as "ecological supporting facilities."

At the same time, another type of structural patch is forming: aggregators. As more DEXs emerge, the problem of fragmented liquidity becomes more pronounced, and users face a new decision-making burden of "where to trade" on-chain. From 1inch, which launched in 2020, to later platforms like Matcha and Jupiter, aggregators have taken on a new role: they are not DEXs but coordinate the liquidity paths of all DEXs. In particular, Jupiter has rapidly risen on the Solana chain precisely because it fills the gaps in path depth, asset transitions, and trading experience.

However, the evolution of DEX structures has not stopped at on-chain adaptation. After 2021, projects like ThorChain and Router Protocol emerged, proposing a more radical proposition: can swaps be completed between parties not on the same chain? These "cross-chain DEXs" began attempting to solve the inter-chain asset circulation problem through methods such as self-built validation layers, message relays, or virtual liquidity pools. Although the protocol structure is far more complex than single-chain DEXs, their emergence signals that the evolution path of DEXs has departed from any specific public chain and is moving towards an era of inter-chain protocol cooperation.

At this stage, DEXs are difficult to categorize by "type": they can be liquidity gateways like ### 1inch (, or protocol coordinators like ) Velodrome (, and more likely inter-chain exchange mechanisms like ) ThorChain (. They are not "designed" like the previous generation but are more like "squeezed out by structure."

At this stage, DEX is no longer just a tool, but an environmental response—a adaptive product used to accommodate changes in network structure, cross-chain asset jumps, and incentive games between protocols. It is no longer a "product update," but a manifestation of "structural evolution."

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2. When Pricing, Liquidity, and Narrative Converge: How DEX "Steps Into" Launch

Looking back at the development paths of the first four generations of DEXs, it is not difficult to notice one thing: their continuous evolution has never been due to a more clever design of a certain feature, but rather a constant response to the real needs on the chain — from matching and market making to aggregation and cross-chain, each transformation of DEX is a natural filling of structural gaps.

At this stage, DEX is no longer just a "function point" on a specific chain; it resembles a "default adaptation layer" after structural changes on the chain. Whether it is projects wanting to incentivize, protocols needing to attract users, or cross-chain aggregations, DEX plays an increasingly significant role in "dispatch" and "coordination."

But as it takes on more and more roles, DEX inevitably encounters another structural dilemma that has long existed but has always been absent:

To launch on a centralized exchange (CEX), one needs to list tokens, negotiate resources, and build a community; to go live on-chain, one must set up a pool, find liquidity, and initiate the circulation of existing tokens. These seemingly scattered issues ultimately converge into a core challenge: who will provide the launch structure for new projects during their cold start?

In the early cryptocurrency market, launches were often dominated by centralized exchanges, controlling resource operations such as listing schedules, price guidance, user distribution, and marketing nodes. Although this model was efficient, it also brought issues such as high entry barriers, lack of transparency, and excessive centralized power.

As DEX gradually masters pricing, liquidity, user mobilization, and community mechanisms, it begins to structurally possess the capability to undertake all the elements required for a Launch—this is not because DEX wants to do a Launch, but rather because it has naturally evolved into the shape of a Launch through its functional and ecological development.

It has never "