Automated Strategies
The concept behind every 'DeFi' and 'DEX' mention on this site, explained once — how trading without an exchange in the middle actually works, and what you give up and gain.
Draft status: needs a compliance pass before publish — see the checklist below.
DeFi (Decentralized Finance) refers to financial services — trading, lending, borrowing, earning yield — run entirely by code (smart contracts) on a blockchain, with no company in the middle holding your funds or approving your transaction. A DEX (Decentralized Exchange) is DeFi’s version of a trading venue: instead of Kraken or Binance matching your order against another trader’s, you trade directly against a pool of funds locked in a smart contract.
This is different from everything else on this site so far. Every exchange covered in the Academy — Kraken, Bybit, Binance, Coinbase, OKX — is a company you create an account with, that holds an order book and (usually) your funds. A DEX has no account, no company, and no order book in the traditional sense.
Most DEXs use an AMM (Automated Market Maker) instead of an order book. Other users — liquidity providers — deposit pairs of assets (e.g. ETH and USDC) into a pool. When you trade, you’re swapping directly against that pool, and a formula (not a matched buyer) determines your price. The pool’s own ratio of assets shifts with every trade, which is also the mechanism behind impermanent loss — a risk already covered in Exchange Staking vs. On-Chain Staking vs. Yield Farming for anyone supplying a pool.
You connect a self-custody wallet (see Wallets and Custody) directly to a DEX’s website — there’s no sign-up, no KYC on most DEXs, and no company that can freeze your account. The tradeoff is that there’s also no support line, no password reset, and no one to call if you send funds to the wrong contract.
| Centralized exchange (Kraken, Bybit, etc.) | DEX | |
|---|---|---|
| Custody | Usually the exchange, unless you withdraw | Always you |
| Account required | Yes, with KYC | No |
| Counterparty | The exchange’s order book | A liquidity pool’s smart contract |
| Recourse if something goes wrong | Support team, sometimes | None — the code is the final word |
| Main added risk | Exchange insolvency or hack | Smart-contract bugs or exploits |
Every yield-farming and DeFi mention elsewhere in the Academy assumes you understand this mechanism. You don’t need to ever use a DEX — most of this site’s guides are about centralized exchanges specifically — but “smart-contract risk,” “liquidity pool,” and “AMM” only make sense once this page’s model is in your head.
DeFi removes a company from the middle of the transaction, but it does not remove risk — it trades custodial risk for smart-contract risk, and a bug or exploit in a DEX’s code can result in a total loss of funds in that pool with no recovery mechanism. Nothing on this page is financial advice.
Editorial checklist before publish: compliance sign-off · consider naming a specific well-audited DEX as a concrete example once the site’s disclosure/sponsorship policy for DeFi protocols is decided.