DEX: Never Truly Understood

In the crypto financial system, DEX has always played a special role. It seems to be always online, without downtime, censorship, or exit scams, but has long been in a marginal position: the interface is complex, liquidity is insufficient, and there is a lack of compelling narratives, making it neither the center of trending topics nor the first choice for popular projects. When DeFi exploded, it was seen as an alternative to centralized exchanges; after the bear market arrived, it was repositioned as a "legacy of the DeFi era that emphasizes security and self-custody." In an industry that is now more focused on new narratives such as public chains, AI, RWA, and inscriptions, DEX seems to have lost its sense of presence.

However, in the long run, DEX has been quietly growing and starting to shake the foundational logic of on-chain finance. The popularity of Uniswap is just a node in its development history, while projects like Curve, Balancer, Raydium, and Velodrome are its metamorphoses. When we observe the evolution of AMM, aggregators, and L2 DEX, what is actually driving this is the self-evolution process of the underlying distributed finance.

Therefore, I tried to jump out of the perspectives of "product comparison" and "track trends" to review the historical context and elaborate on the structural evolution logic of DEX:

• How DEX evolves from a tool to a structural evolution logic on-chain
• How it absorbs financial mechanisms and ecological goals from different periods
• Why can't we avoid DEX when we talk about project launch, cold start, and community self-organization?

This is the evolution of DEX, an observation of the decentralized "functional spillover" structure, and the unfolding of a historical path. I also attempt to answer an increasingly unavoidable question:

When we talk about Web3, why can't every project avoid DEX?

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

1. First Generation DEX: Expression of Decentralization ( EtherDelta Era )

Around 2017, when centralized exchanges were at their peak, a group of crypto geeks quietly launched a peculiar experiment on the blockchain: EtherDelta.

Compared to some trading platforms during the same period, the user experience of EtherDelta can almost be described as disastrous: transactions require manually inputting complex on-chain data, there is high interaction latency, and the user interface is comparable to primitive web pages from the last century, almost deterring ordinary traders.

However, the birth of EtherDelta was not just for ease of use from the very beginning, but to completely break free from "centralized trust": trading assets are fully controlled by the users themselves, and order matching is completed entirely on the Ethereum chain, without the need for intermediary custody or trust in third parties. Ethereum founder Vitalik Buterin has even publicly expressed his expectations for this model, believing that on-chain decentralized trading is one of the directions for the real-world application of blockchain.

Although EtherDelta gradually faded from view due to its technical and user experience limitations, it left an undeniable mark in blockchain history: DEXs began to be not just trading tools, but a practice of resistance against centralization.

It may not have been the darling of the market at the time, but it planted the genetic seeds for future projects like Uniswap, Balancer, and Raydium: user asset self-custody, on-chain order matching, and no need for custodial trust - these very traits became the foundational framework for the continuous evolution, derivation, and expansion of DEX in the future.

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

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

In 2018, Uniswap released v1 and introduced an Automated Market Maker (AMM) mechanism on-chain for the first time, completely breaking the limitations of traditional order book matching models. Its underlying trading logic is simple yet revolutionary - x * y = k: this formula is the core innovation of Uniswap, allowing liquidity pools to automatically price assets without counterparties or orders. As long as you deposit 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 the fact that it not only addresses the "chicken or egg" problem of early DEXs where trading cannot occur without orders placed, but also fundamentally changes the source of on-chain trading liquidity: anyone can become a liquidity provider(LP), injecting assets into the market and earning transaction fees.

The success of Uniswap has also inspired innovation in variants of other AMM mechanisms:

Balancer has introduced multi-asset + custom weight pools, allowing projects to set their own asset weights and distributions.

Curve has designed an optimized curve to address the high slippage issues with stablecoins, enabling asset exchanges at lower costs.

SushiSwap builds upon Uniswap by incorporating token incentives and governance mechanisms, initiating the narrative of "liquidity mining + community sovereignty;"

These variants have collectively pushed AMM DEX into the "protocol productization" phase. Unlike the first generation of DEX, which was primarily concept-driven and roughly formed, the second generation of DEX has begun to exhibit clear product logic and a closed loop of user behavior: they not only facilitate trading but also serve as the structural foundation for asset circulation, the entry point for users to participate in liquidity, and even as a part of launching project ecosystems.

It can be said that since Uniswap, DEX has truly transformed for the first time into a "product" that can be used, can grow, and can accumulate users and capital - no longer an adjunct to the realization of concepts, but has begun to become the structure builder itself.

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

After entering 2021, the evolution of DEX began to diverge from a single trading scenario, entering a "fusion stage" where functionality overflow and ecological integration occur in parallel. In this stage, DEX is no longer just a "place to exchange currencies", but gradually grows into the liquidity core of the on-chain financial system, the entry point for project cold starts, and even the 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 and is the first DEX to attempt the deep integration of the AMM mechanism with an on-chain order book. It not only provides liquidity pools based on constant product but also syncs trades to the Serum on-chain order book, forming a liquidity structure where "automated market making + passive orders" coexist. 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 a 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 the linkage between primary issuance and secondary trading.

In this phase, the functionality explosion is far beyond Raydium:

• SushiSwap added trading mining, governance tokens, community governance, and the "Onsen" incubation pool to the Uniswap model, forming a governance-based DEX ecosystem;

• A certain trading platform has combined features such as blockchain games, NFT markets, and on-chain lotteries to achieve DEX platform operations on the BNB Chain.

• Velodrome(Optimism) has introduced "inter-protocol liquidity scheduling" based on the veToken model, allowing DEX to become a coordinator between protocols rather than just serving users;

• Jupiter serves 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 at this stage is that DEX is no longer the endpoint of the protocol, but rather a relay network connecting assets, projects, users, and the protocol.

It needs to undertake the "terminal interaction" of user transactions, embed the "initial traffic" of project issuance, and also interface with a complete set of on-chain behavior systems including governance, incentives, pricing, and aggregation.

DEX, from now on detached from the "Island Agreement" identity, becomes a hub primitive in the DeFi world ( - a highly adaptable and highly composable on-chain consensus component.

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4. Fourth Generation DEX: Transformative Growth in Multi-Chain Torrent, is Aggregation, L2 and Cross-Chain Experiments

If the evolution of the first two generations of DEXs represents a paradigm shift in technology, the third stage, Raydium, is an attempt at modular functionality stitching. Since 2021, DEX has entered a more difficult-to-classify phase: it is no longer a specific team leading the "version upgrade," but rather the entire on-chain structure forcing it to undergo adaptive transformations.

The first to feel this change are the DEXs deployed on Layer 2.

After the mainnet launch of Arbitrum and Optimism, the high gas costs of transactions on Ethereum are no longer the only option, and the Rollup structure is beginning to become the new soil for the growth of the next generation of DEXs. GMX adopts a pricing model based on oracle pricing and perpetual contracts on Arbitrum, 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 rooting themselves on specific chains in a way that serves as "ecological supporting facilities."

At the same time, another type of structural patch is also taking shape: aggregator.

As the number of DEXs increases, the issue of fragmented liquidity quickly amplifies, and users' decisions on "where to trade" on-chain gradually become a new burden. From a certain DEX launched in 2020 to later ones like Matcha and Jupiter, aggregators have taken on a new role: they are not DEXs, but they coordinate the liquidity pathways of all DEXs. Particularly with Jupiter, its rapid rise on the Solana chain is precisely because it fills the gaps in path depth, asset swapping, and trading experience.

But the evolution of the DEX structure has not stopped at on-chain adaptation. After 2021, projects like ThorChain and Router Protocol were launched one after another, proposing a more radical proposition: can trading parties complete exchanges without being on the same chain at all? These "cross-chain DEXs" began attempting to solve the inter-chain asset circulation problem through self-built verification layers, message relays, or virtual liquidity pools. Although the protocol structure is far more complex than single-chain DEXs, their emergence sends a signal: the evolutionary path of DEXs has already departed from a specific public chain and is moving towards an era of inter-chain protocol collaboration.

At this stage, DEXs are hard to classify by "type": they may serve as liquidity gateways, protocol coordinators, or more likely as cross-chain swapping mechanisms. They are not "designed" like the previous generation but are more like those that have been "squeezed out by structure."

At this point, DEX is no longer just a tool, but rather a response to the environment - an adaptive product used to accommodate changes in network structures, cross-chain asset jumping, and incentive games between protocols. It is no longer a "product update," but rather a reflection of "structural evolution."

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II. When Pricing, Liquidity, and Narrative Intersect: How DEX "Steps Into" Launch

Looking back at the development path of the first four generations of DEXs, it is not difficult to find one thing: their continuous evolution has never been due to a more clever design of a certain feature, but rather because they are constantly responding to the real needs on the chain - from matching, market making, to aggregation and cross-chain, every transformation of DEX is a natural filling of a structural gap.

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 projects want to incentivize, protocols need to attract traffic, or cross-chain efforts aim to aggregate, DEX plays an increasingly significant role in "dispatching" and "coordinating".

However, as it takes on more roles, DEX inevitably encounters another.