How to Swap on a DEX
A DEX allows users to swap their assets through smart contracts or on-chain order mechanisms.
On this page
- Who is the Counterparty on a DEX?
- Network and Address Selection Before Connecting Your Wallet
- Approving and Swapping are Two Separate Steps
- Which Figures Should You Look at in the Swap Summary?
- Where Does the Money Go in a Failed Transaction?
- What Risks Does Using a DEX Not Eliminate?
- Why Does the Transaction Route Show Multiple Tokens?
- Sources
A decentralized exchange is an application where crypto asset swaps are performed through smart contracts or on-chain order mechanisms. The acronym DEX is used for these applications. In common practice, instead of depositing funds into an exchange account, you connect your wallet, select which asset you want to exchange for another, and confirm the transaction in your wallet. While its use may seem to consist of only a few buttons, factors such as network selection, token addresses, and the minimum amount to be received directly affect the outcome.
Who is the Counterparty on a DEX?
On centralized exchanges, buy and sell orders mostly match in an order book. Some DEXs also feature an order book. However, in DEXs that use automated market makers (AMM), the transaction occurs with a liquidity pool where users have deposited assets. The asset amounts in the pool and the pricing rules determine the result of the swap. Therefore, one should not assume that every DEX works the same way.
For example, in a pool containing ETH and USDC, when you buy ETH, USDC enters the pool and ETH leaves it. Your transaction changes the balance of the pool. If you try to buy a large amount of ETH from a small pool, your average purchase price may be significantly higher than the initial price. This is called price impact. The last price you see on the screen does not mean that every amount you want can be purchased at that same price.
Network and Address Selection Before Connecting Your Wallet
The first step is to find the application’s official address from the project’s own documentation. Advertisements in search engines, social media replies, or links sent via private message may mimic the official site. Next, select the network you will use. A USDC balance on the Ethereum mainnet does not automatically become available in an application on another network. Seeing the same wallet address does not mean the balances on these networks are shared.
When selecting a token, do not settle for just the name and logo. Numerous tokens can be created with the same symbol. Compare the contract address with the issuer’s or the project’s official source. Additionally, your wallet must contain the asset to pay the network fee. For example, alongside the USDC you will swap on the Ethereum mainnet, you need enough ETH to cover the transaction fee. Using your entire balance for a single transaction may make it difficult to cover subsequent transaction fees.
Approving and Swapping are Two Separate Steps
When using an ERC-20 token for the first time, the application may ask you for spending approval. This permission allows a specific contract to use a certain amount of your tokens. Confirming the approval is not the same as buying or selling the token. After the approval process is complete, a separate confirmation may be required for the swap. Since some wallets and protocols combine these steps, it is important to read what the signature you see on the screen is authorizing.
For example, if you want to swap 100 USDC, limiting the approval amount to 100 USDC restricts access to your unused balance. Unlimited approval can make subsequent transactions easier, but if a problem arises with the contract, it could affect more of your balance. Disconnecting your wallet from the site does not revoke the on-chain approval you previously granted. Revoking approval is a separate transaction and may require a network fee.
Which Figures Should You Look at in the Swap Summary?
Alongside the amount to be sent, you will find the expected output, the minimum amount to be received, price impact, and the network fee. These pieces of information do not describe the same thing. The expected output is an estimate under current conditions. The minimum output is the lower limit you accept while the transaction is being processed. The network fee may be paid from a balance separate from the asset you are swapping. The application’s service fee or pool fee may also be included in the total result.
In a hypothetical example, imagine you expect 0.05 ETH in exchange for 100 USDC and set your slippage tolerance to 1 percent. With a simplified calculation, the accepted minimum output would be 0.0495 ETH. This does not mean the transaction will definitely occur with a 1 percent slippage; it is a limit set to prevent the transaction from occurring if a worse output arises. If the shown price impact is already high, increasing the tolerance will not fix the bad price; it may lead you to accept an even worse result.
Where Does the Money Go in a Failed Transaction?
In a swap that is included in the chain but rejected because it does not meet the contract conditions, the asset exchange does not occur. Despite this, a network fee for the calculation performed may still be deducted. If a transaction is pending in the wallet, check the transaction ID on a block explorer before pressing the same button repeatedly. A pending transaction is different from a failed transaction; the application’s on-screen warning alone may not show the definitive result.
Even when a swap is successful, the target token may not automatically appear in the wallet list. Check the token movements in the transaction record and the balance on the correct network. You do not need to share private keys or recovery words to make an unfamiliar token visible. If a site asks for this information to “unlock” a balance, it is not a normal part of the transaction process.
What Risks Does Using a DEX Not Eliminate?
Managing your wallet yourself does not mean the swap contract is error-free. Contract vulnerabilities, malicious token rules, fake interfaces, admin privileges, and attacks exploiting transaction ordering are separate issues. Some tokens can be purchased but may restrict selling; some may apply deductions during transfer. The existence of a liquidity pool does not mean these features are safe.
Furthermore, the name DEX does not prove that every component is decentralized. Web interfaces can be blocked, certain transactions can be restricted, or administrators can change some contracts. For the amount you intend to use, it is necessary to understand the actual swap offer, the total fee, and the exit possibility. When comparing with a centralized exchange, look not only at the commission rate but also at the net asset you will receive for the same amount. For small transactions, the network fee can constitute a large portion of the total cost.
Why Does the Transaction Route Show Multiple Tokens?
Some swap interfaces use intermediate assets or multiple pools instead of a direct pool. For example, moving from token A to token B might follow the A → ETH → B route because better liquidity is found there. Although the token the user eventually receives is the same, the total fee and price impact depend on the route. Compare the net output on the confirmation screen along with the fee of the network being used. More steps do not always mean a worse price; low liquidity in a single pool can also increase costs. You may not need to hold every token you see in the route separately in your wallet.