A decentralized exchange (DEX) is a platform that allows users to trade cryptocurrencies directly with one another without relying on a central authority. Instead of a company managing transactions, trades happen through smart contracts on the blockchain, making the process automated and trustless.

Traditional exchanges often use order books, where buyers and sellers place bids and wait for a match. In contrast, DEXs rely on liquidity pools—pools of tokens supplied by users—to enable instant trades.

Here’s how it works:

This system allows trades to be executed at any time, provided there is liquidity in the pool.

An Automated Market Maker (AMM) is the system that powers most decentralized exchanges. Instead of matching buyers and sellers, AMMs use mathematical formulas to determine token prices based on the ratio of assets in the liquidity pool.

With an AMM, trades do not require a counterparty to be present at the same time. Prices fluctuate based on liquidity levels and the size of a trade.

Moonshot is not an exchange—it is a self-custody blockchain wallet that allows users to interact with DEXs through Jupiter Aggregator, a smart contract that routes swaps through multiple DEXs to get better prices. Moonshot submits your transactions to the blockchain where it interacts directly with Jupiter's smart contracts.

Moonshot does not hold user funds or act as a counterparty in any trade.

Some exchanges, both centralized and decentralized, use order books, where trades are executed when a buyer and seller agree on a price. This system depends on active market participation.

AMMs operate differently by using liquidity pools, where trades interact with a pool of assets instead of a direct counterparty. Prices adjust algorithmically based on supply and demand within the pool.

Larger trades may influence prices more significantly, depending on the liquidity available.