DEX: Never truly understood

In the cryptocurrency financial system, DEX has always been an intriguing role. It seems to be always online, never down, uncensored, and not running away, but has long been in the margins: the interface is complex, liquidity is insufficient, and it lacks a compelling narrative, making it neither the center of hot topics nor the first choice for projects to flock to. When DeFi exploded, it was seen as a replacement for centralized exchanges; after the bear market arrived, it was repositioned as a "safe, self-custodial" DeFi legacy. As the industry's focus shifted to new narratives such as public chains, AI, RWA, inscriptions, etc., DEX seems to have lost its sense of presence.

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

This article will jump out of the perspectives of "product comparison" and "track trends" to review the historical long-term view and elaborate on 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 is DEX still the core topic when discussing project launches, cold starts, and community self-organization?

This is the evolution of DEX, as well as an observation of the "functional spillover" structure of decentralization. We will attempt to answer an increasingly important question: why is it difficult for every project to bypass DEX in the Web3 era?

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

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

Around 2017, when centralized exchanges were thriving, a group of crypto enthusiasts quietly launched the EtherDelta experiment on the blockchain. Compared to centralized exchanges at the same time, the trading experience on EtherDelta was almost disastrous: users had to manually input complex on-chain data, there was high interaction latency, and the user interface resembled a primitive webpage from the last century.

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

Although EtherDelta gradually faded away due to technical and user experience issues, it planted the genetic seeds for future projects like Uniswap, Balancer, and Raydium: user asset custody, on-chain order matching, and no need for custodial trust. These characteristics have become the foundational framework for the continuous evolution, derivation, and expansion of DEX.

2. Second Generation DEX: 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 implementation path for this ideal.

In 2018, Uniswap released version 1 and introduced the automated 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 is simple yet revolutionary—x * y = k: this formula is the core innovation of Uniswap, allowing liquidity pools to automatically price without the need for counterparties or order placements. As long as you put one asset into the pool, you can automatically obtain another asset according to the constant product curve.

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

The success of Uniswap has also inspired innovative variations of other AMM mechanisms:

• Balancer introduces 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 issue for stablecoins, enabling lower-cost asset exchanges.
• SushiSwap adds token incentives and governance mechanisms based on Uniswap, initiating the narrative of "liquidity mining + community sovereignty".

These variants have collectively propelled AMM DEX into the "protocol productization" phase. Unlike the first generation of DEX, which was primarily driven by concepts and had a rough form, the second generation of DEX has exhibited a clear product logic and user behavior loop: 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 initiating project ecosystems.

Starting from Uniswap, DEX has truly transformed for the first time into a "product" that can be used, grow, and accumulate users and capital—no longer an accessory to the realization of concepts, but rather becoming the structure builder itself.

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

After entering 2021, the evolution of DEX began to move away from a single trading scenario, entering a "fusion stage" where functional spillover and ecological integration occur in parallel. In this stage, DEX is no longer just a "place to exchange coins", but gradually becomes the liquidity core in the on-chain financial system, an entry point for project cold starts, and even a dispatcher for ecological structure.

One of the most representative paradigm shifts during this period is the emergence of Raydium. Raydium was born on the Solana blockchain and is the first DEX to 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 transactions 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 levels of the order book, 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 of the "CEX experience" that a DEX is attempting on-chain for the first time. For new projects in the Solana ecosystem, Raydium is not merely a trading venue but also a launchpad—serving as a hub for initial liquidity, token distribution, order book depth, and project exposure, linking primary issuance and secondary trading.

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

• SushiSwap added trading mining, governance tokens, community governance, and the "Onsen" incubation pool on the Uniswap model, forming a governance-oriented DEX ecosystem.
• PancakeSwap combines features such as blockchain games, NFT marketplaces, and on-chain lottery to operate as a DEX platform on the BNB Chain.
• Velodrome (Optimism) introduced the "inter-protocol liquidity scheduling" based on the veToken model, allowing DEX to act as 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 connecting assets, projects, users, and the protocol. It needs to handle 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 such as governance, incentives, pricing, and aggregation.

The DEX has since detached itself from the "island protocol" identity, becoming a hub primitive in the DeFi world—a highly adaptable and highly composable on-chain consensus component.

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

If the evolution of the first two generations of DEX is a paradigm shift in technology, then the third stage of Raydium is an attempt at modular splicing. Starting from 2021, DEX has entered a more difficult-to-categorize phase: it is no longer a "version upgrade" led by a specific team, but rather the entire on-chain structure is 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 for transactions on Ethereum are no longer the only option, and the Rollup structure begins to become the soil for the growth of the new generation of DEXs. GMX adopts an oracle pricing + perpetual contract model on Arbitrum, addressing the issue of "AMM not being sufficient for depth" with a minimalist path and a structure without LP pools. Meanwhile, on Optimism, Velodrome attempts to establish a liquidity incentive governance coordination mechanism between protocols using the veToken model. These DEXs are no longer pursuing universality but are instead taking root on specific chains as "ecological supporting facilities."

At the same time, another type of structural patch is also taking shape: aggregators. As the number of DEXs increases, the problem of fragmented liquidity quickly amplifies, and users’ decision-making burden gradually shifts to "where to trade" on the chain. From the launch of 1inch in 2020 to later platforms like Matcha and Jupiter, aggregators have taken on a new role: they are not DEXs, but they coordinate the liquidity paths of all DEXs. In particular, Jupiter's rapid rise on the Solana chain is due to its precise filling of gaps in path depth, asset swaps, and trading experience.

However, the evolution of DEX structures has not stopped at on-chain adaptation. After 2021, projects like ThorChain and Router Protocol have been launched one after another, proposing a more radical proposition: can two parties complete a swap without being on the same chain? These "cross-chain DEXs" have begun to attempt to solve the inter-chain asset circulation problem through methods such as building their own validation layers, message relaying, or virtual liquidity pools. Although the protocol structure is much more complex than single-chain DEXs, their emergence sends a signal: the evolutionary path of DEX has moved away from any specific public chain and is heading towards an era of inter-chain protocol collaboration.

At this stage, DEXs are difficult to classify by "type": they may be liquidity entry points (1inch), protocol coordinators (Velodrome), or more likely inter-chain exchange mechanisms (ThorChain). They are not so much "designed" like the previous generation, but rather "squeezed out" by structure.

At this point, DEX is no longer just a tool, but a response to the environment—a compatible product used to accommodate changes in network structure, cross-chain asset transitions, and incentive games among protocols. It is no longer a "product update," but a manifestation of "structural evolution."

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 notice one thing: their continuous evolution has never been due to a particular feature being designed more cleverly, but rather because they constantly respond to the real needs on the chain — from matching, market-making, to aggregation and cross-chain, each 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 the structural changes on the chain. Whether projects want to provide incentives, protocols need to drive traffic, or cross-chain wants to aggregate, DEX plays an increasingly significant role in "scheduling" and "coordinating".

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

For centralized exchanges, it is necessary to list coins, negotiate resources, and build communities; for blockchain launches, it requires creating pools, finding liquidity, and initiating the circulation of assets. These seemingly disparate issues ultimately converge into a core challenge: who will provide the initial structure for the cold start of new projects?

In the early cryptocurrency market, launches were often a resource operation dominated by centralized exchanges: the pace of listing coins, price guidance, user distribution, and promotional nodes were all controlled by the platform. Although this model was efficient, it also brought issues such as high entry barriers, lack of transparency, and excessive centralized power.

As DEX gradually mastered pricing, liquidity, user mobilization, and community mechanisms, it began to structurally...