DEX: Never Truly Understood

In the crypto financial system, DEX has always played an interesting role. It seems to be always online, never shutting down, never censoring, and never running away, but it has long been on the fringes: the interface is complex, liquidity is insufficient, and it lacks a compelling narrative, not being the center of hot topics nor the preferred platform for project onboarding. When DeFi exploded, it was seen as an alternative to centralized exchanges; after the return of the bear market, it became a "DeFi era legacy" marketed with points like "security and self-custody." As the industry's focus has shifted to new narratives like public chains, AI, RWA, and inscriptions, DEX seems to have lost its sense of presence.

However, when we extend the timeline and unfold the structure, we find that DEX has been quietly growing and beginning to shake the underlying logic of on-chain finance. The once-popular Uniswap is merely a node in its development journey, while derivative projects like Curve, Balancer, Raydium, and Velodrome are just its transformations. 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, we need to step out of the perspectives of "product comparison" and "track trends" to review the historical long-term view and clarify the logic of its structural evolution:

• How DEX has evolved from on-chain tools to structured logic;
• How it has absorbed financial mechanisms and ecological goals from different periods;
• Why is DEX still an unavoidable topic when we talk about project initiation, cold start, and community self-organization?

This is the evolutionary history of DEX, as well as a structural observation of the decentralization "function spillover", and even an unfolding of a historical path. We will also attempt to address an increasingly prominent 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 Center

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

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

Compared to centralized exchanges like Binance and OKEx during the same period, the trading experience on EtherDelta can be described as a disaster: it requires manually entering complex on-chain data, has high interaction latency, and has a rudimentary user interface, which almost discourages ordinary traders.

However, the emergence of EtherDelta was not just about usability from the very beginning, but to completely get rid of "centralized trust": trading assets are fully controlled by users, and order matching is completed entirely 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-world application of blockchain.

Although EtherDelta gradually faded from view due to technical and user experience issues, it left an important mark in blockchain history: DEXs are no longer just trading tools, but have become a practice of expressing opposition to 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, no need for custodial trust—these very qualities became the foundational framework for the continuous evolution, derivation, and expansion of DEX in the future.

2. Second Generation DEX: A 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 for the first time.

In 2018, Uniswap released version 1, which introduced the 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 price automatically without the need for counterparties or orders. As long as one asset is added to the pool, another asset can be automatically obtained according to the constant product curve. No counterparties are needed, no orders are needed, no matching is needed; trading behavior is equivalent to pricing behavior.

The breakthrough of this model lies in the fact that it not only solves the problem of "no one is placing 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 fees.

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

Balancer introduces multi-asset + customizable weighted 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, achieving lower-cost asset exchanges.

SushiSwap adds token incentives and governance mechanisms on top of Uniswap, initiating the narrative of "liquidity mining + community sovereignty";

These variants collectively drive AMM DEX into the "protocol productization" phase. Unlike the first generation of DEX, which was mainly driven by ideas and had a rough form, the second generation of DEX has begun to show clear product logic and user behavior loops: they not only facilitate trading but also serve as the structural foundation for asset circulation, the entry point for user participation in liquidity, and even a part of launching project ecosystems.

It can be said that, starting from Uniswap, DEX has truly become a "product" that can be used, can grow, and can accumulate users and capital for the first time—no longer an accessory to the realization of concepts, but rather starting to become the structural builder itself.

3. Third Generation DEX: From Tools 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 phase" characterized by functional spillover and ecological integration. In this phase, DEX is no longer just a "place to swap coins", but gradually becomes the liquidity core in the on-chain financial system, an entry point for project cold starts, and even a scheduler for 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 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 trades 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 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 the first attempt by a DEX to introduce a "CEX experience" through distributed reconstruction on-chain. For new projects in the Solana ecosystem, Raydium is not just a trading venue, but also a launchpad—serving as the hub for initial liquidity, token distribution, order book depth, and project exposure, linking primary issuance with 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 to the Uniswap model, forming a governance-based DEX ecosystem;

• PancakeSwap combines features such as blockchain gaming, NFT marketplace, and on-chain lottery to achieve DEX platform operations on the BNB Chain;

• Velodrome (Optimism) introduces "inter-protocol liquidity scheduling" based on the veToken model, allowing DEX to become 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 characteristic of this stage is that DEX is no longer the endpoint of the protocol, but rather a relay network connecting assets, projects, users, and protocols.

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

DEX, from now on, breaks away from the "Island Protocol" identity and becomes 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 tide, is aggregation, L2 and cross-chain experimentation.

If the evolution of the first two generations of DEX was a paradigm shift in technology, then the third phase of Raydium is an attempt to splice functional modules. Starting from 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 make 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, as the Rollup structure begins to serve as the new soil for the growth of the next generation of DEX. GMX adopts an oracle pricing + perpetual contract model on Arbitrum, addressing the issue that "AMM is insufficient to solve depth" with a minimal path and a structure without LP pools. Meanwhile, on Optimism, Velodrome utilizes the veToken model to attempt to establish a governance coordination mechanism for liquidity incentives between protocols. These DEXs no longer pursue universality but instead take root on specific chains 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 problem of fragmented liquidity quickly magnifies, and users' decision-making burden of "where to trade" on-chain gradually becomes a new challenge. From 1inch launched in 2020 to later Matcha and Jupiter, aggregators have taken on a new role: they are not DEXs, but manage the liquidity paths of all DEXs. In particular, Jupiter's rapid rise on the Solana chain is precisely because it fills the gaps in path depth, asset swaps, and trading experience.

However, the evolution of 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: Is it possible for both parties to complete a swap without being on the same chain? These "cross-chain DEXs" began to attempt to solve the inter-chain asset flow problem through self-built verification layers, message relays, 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 already departed from a specific public chain and is moving towards an era of inter-chain protocol collaboration.

At this stage, DEXs are difficult to classify by "type": it may be a liquidity entry point (1inch), an agreement coordinator (Velodrome), or more likely an inter-chain swapping mechanism (ThorChain). They are not "designed" like the previous generation, but rather seem to be "squeezed out by structure."

At this point, DEX is no longer just a tool, but an environmental response—an adaptive product designed to accommodate changes in network structure, cross-chain asset transfers, and incentive games between protocols. It is no longer a "product update" but a manifestation of "structural evolution."

2. When Pricing, Liquidity, and Narrative Intersect: How DEX "Enters" 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 particular feature being designed more cleverly, but rather because they have been 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 "feature point" on a specific chain; it resembles a "default adaptation layer" after the structural changes on the chain. Whether it is projects wanting to create incentives, protocols needing traffic, or cross-chain initiatives wanting to...