How to Buy Crypto on DEX

The so-called DEX are decentralized crypto exchanges, meaning those that are managed by a protocol (technically an on-chain smart contract) and not by real-life individuals. 

They differ from CEX, or centralized exchanges, in several aspects, but their usage has now become quite similar. 

However, there is one significant difference regarding their use. 

The Problem with Fiat Currencies

In fact, DEXs, operating on-chain, are completely incompatible with real traditional fiat currencies, such as dollars and euros, due to the simple fact that real fiat currencies do not exist on-chain. 

In the future, the so-called CBDCs (Central Bank Digital Currencies) might also land on major public blockchains, but for now, they are not present, and it’s not even certain that they will be in the future.

In fact, CBDCs will very likely be based on their own ledger, managed directly by the central bank that issues them, and they might not have any need to also land on public blockchains. 

Although fiat currencies are not present on DEXs, there are stablecoins, such as USDT and USDC, which can be considered in every respect as on-chain versions of the fiat dollar. 

Therefore, on DEXs, one does not operate—and cannot operate—directly in fiat currency. Transactions are conducted in stablecoins, which inevitably means that anyone wishing to enter or exit in fiat currency must rely on CEXs to convert fiat into stablecoins and vice versa. 

Other Differences

Another significant difference between DEX and CEX is that decentralized exchanges do not require any user identity verification and are completely anonymous. 

To be honest, since they are based on public blockchains, nowadays there are tools that in several cases allow tracing the name of the owner of an anonymous account on a DEX, but in the vast majority of cases, they can be used not only freely but also anonymously. 

However, when using a CEX to exchange fiat for stablecoins, anonymity is often compromised. 

Another crucial difference lies in the fact that on CEXs, the custodian of users’ funds is the exchange operator, whereas on DEXs, it remains the user themselves.

However, it should be noted that when funds are deposited on a DEX for use, they are actually deposited into a smart contract which, in case of issues, might no longer allow the user to access those funds, or in the event of theft, cannot return the stolen assets. 

Purchasing Crypto on DEX

Buying crypto on a DEX essentially means “swapping” one token for another thanks to liquidity pools managed by smart contracts. 

This is often a very simple action, comparable to that on traditional CEX, but technically it has significant differences. 

The first step, however, is to deposit the funds on the decentralized exchange. 

It is not necessary to deposit stablecoins, as many DEXs support trading pairs in the native crypto of the blockchain they are based on. For example, DEXs on Ethereum support various trading pairs in ETH. 

In the event that you wish to deposit stablecoins, you must first purchase them on a CEX using fiat currency, if you do not already have them in your wallet. 

First Step: The Non-Custodial Wallet

To use a DEX, a non-custodial wallet is required. 

This is a crypto wallet fully owned by the user alone, meaning it grants full and exclusive control of the private keys solely to the user and no one else. 

Before proceeding, it is advisable to thoroughly understand what non-custodial wallets are, how they work, and how to use them, as they have no equivalent in traditional finance. 

Generally, the most commonly used non-custodial wallet for interacting with DEXs, particularly those on Ethereum and Solana, is MetaMask, which can also be used on EVM-compatible chains like Arbitrum, Base, Optimism, and Polygon. It is available both as a browser extension and as a mobile app. 

Another widely used non-custodial wallet is Trust Wallet, also because it supports more than 100 blockchains. This wallet is now available both as a browser extension and as a mobile app.

For DEX on Solana, Phantom is widely used. 

The non-custodial wallet should only be downloaded from the official website or official app stores, and once a new account is created, it is absolutely essential to carefully save the seed phrase in complete security.

In fact, without it, it could be entirely impossible to recover your funds in case of issues. Moreover, anyone who possesses it has full and unrestricted access to all the wallet’s funds, so it must be protected as best as possible and never shared with anyone. 

Second Step: The Deposit

After installing the non-custodial wallet, it is necessary to deposit funds into it. 

Some non-custodial wallets allow purchases in fiat currency as well, if connected with compatible centralized services. 

Alternatively, initial purchases can be made on CEX, and then the funds can be transferred to a non-custodial wallet. 

At this point, however, the funds should be moved to the DEX, but a problem arises. 

In fact, to transfer funds from the non-custodial wallet to the on-chain smart contract of the DEX, fees must be paid.

The fees must be paid solely and exclusively in the native crypto of the blockchain on which the transaction is executed, and the transaction must be executed solely and exclusively on one of the blockchains supported by the DEX. 

Therefore, even before receiving funds in the non-custodial wallet, it is necessary to research which blockchain will be used, selecting it from those supported by the DEX intended for use (often DEXs support a single chain, plus its layer-2s). 

Once the blockchain you intend to use is selected, all on-chain operations must be conducted on that blockchain, including the initial deposit into the non-custodial wallet. 

It will also be necessary to ensure that the non-custodial wallet has sufficient funds in the native crypto of that blockchain to cover the fees for subsequent transactions. 

At that point, the second deposit, the one on the DEX, must always and only be made using that blockchain. 

The deposit on the DEX is made simply by sending funds from the non-custodial wallet to the DEX on the chosen blockchain and paying the fees in its native crypto. 

For DEXs on Ethereum, the native crypto used to pay fees is ETH, while for those on Solana, for example, it is SOL. 

Generally, however, to use your funds on a DEX, it is sufficient to connect your non-custodial wallet, thus making the second deposit much simpler. In fact, in several cases, once the non-custodial wallet is connected to the DEX, the funds already present in the wallet can be used directly on the DEX itself. 

Third Step: The Purchase 

Once the funds are deposited on the DEX, both those to be used for the purchase and those to pay the fees, you can proceed with the purchase. 

In reality, after connecting with the wallet, the purchasing process is often very straightforward. 

In other words, the main complications arise only during the initial setup phase, which is done only once. Once everything is configured and the funds are deposited on the exchange, the rest is quite straightforward and very similar to what is done on CEX. 

To make the purchase, it will be sufficient to select on the DEX the trading pair you wish to use, which must consist of the token you want to buy and the one you want to use for payment. 

At this point, the various interfaces of different DEXs change slightly, so the procedure is slightly different in detail from one DEX to another. However, the logic always remains the same. 

Enter the amount of the token you wish to purchase, and the DEX will automatically calculate the exchange rate based on the liquidity pool at that moment.

Set the slippage tolerance (usually between 0.5% and 1%), which is the maximum acceptable price variation, to avoid losses in case of volatility.

Ensure you have sufficient funds to cover the fees, and if everything is correct, click to initiate the transaction (i.e., the swap). 

From that point on, the DEX handles everything. 

An important clarification: fees can vary from time to time and also depend on the level of blockchain congestion.

Therefore, it is always advisable to carefully check their amount before initiating the swap, as they can be particularly high at certain times and lead to unpleasant surprises. 

Once the swap is completed, the purchased tokens will be in the DEX account. If the DEX is connected to the non-custodial wallet, they will already be there as well.