DEX: Never truly understood

DEXs have always played an intriguing role in the crypto financial system.

It seems to be always online - no downtime, no censorship, no exit scams, but it has long been on the fringes: the interface is complex, liquidity is insufficient, and it lacks a narrative. It is neither the center of hot topics nor the first choice for projects to flock to. When DeFi erupted, it was the "alternative" to CEX, and after the return of the bear market, it became the "DeFi era legacy" focusing on "security and self-custody." As the industry pays more attention to new narratives such as public chains, AI, RWA, and inscriptions, DEX seems to have lost its presence.

However, as we extend the time span and expand the structure, we find that DEX has been quietly growing and starting to shake the underlying logic of on-chain finance.

The once popular Uniswap is just one of its historical nodes, while Curve, Balancer, Raydium, Velodrome, etc. are its variants. When we see the evolution of AMMs, aggregators, and L2 DEXs, what is behind it is actually the self-evolution process at the bottom of distributed finance.

Therefore, I tried to step out of the perspective of "product comparison" and "track trends" and return to the historical long-term view to clarify its structural evolution logic:

• How DEX has evolved from a tool to a structural logic on the chain;
• How it has absorbed financial mechanisms and ecological objectives from different eras;
• Why is it that when we talk about Launch, project cold starts, and community self-organization, we cannot avoid DEX.

This is the evolutionary history of DEX, the structural observation of decentralized "function spillover", and the development of a whole historical path. I've also tried to answer a question that's getting harder and harder to avoid these days: When we talk about Web3, why does every project today cannot escape DEX?

A Brief History of DEXs in 1.5 Years: From Marginal Characters to Narrative Hubs

1. First Generation DEX: A Decentralized Expression ( EtherDelta Era )

Around 2017, when centralized exchanges were in full swing, a group of crypto geeks silently launched a peculiar experiment on the chain: EtherDelta.

Compared to some CEXs of the same period, EtherDelta is an almost catastrophic trading experience: complex on-chain data needs to be entered manually, interaction latency is high, and the user interface is comparable to the original web pages of the last century, almost discouraged the average trader.

However, the birth of EtherDelta, from day one, is not just for ease of use, but to completely get rid of "centralized trust": the transaction assets are completely controlled by the users themselves, and the order matching is completely completed on the Ethereum chain, without intermediary custody and no need to trust a third party. Ethereum founder V.B. has even publicly expressed his expectations for this model, believing that on-chain decentralized transactions are one of the directions for the real application of blockchain.

Although EtherDelta itself gradually faded from view due to technical and user experience issues, it left an undeniable mark in the history of blockchain: DEXs began to be more than just trading tools, but rather a practical expression 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: Technological Paradigm Shift ( Emergence of AMM )

If EtherDelta represents the "first principles" of decentralized trading, then the birth of Uniswap provides 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 the chain for the first time, completely breaking the limitations of the traditional order book matching model. The underlying trading logic is simple yet revolutionary - x * y = k: This formula is a core innovation of Uniswap that allows liquidity pools to be automatically priced without the need for counterparties or pending orders. As long as you put one asset into the pool, you can automatically get another asset according to the constant product curve. There is no counterparty, no pending order, no matchmaking, and the trading behavior is equal to the pricing behavior.

The breakthrough of this model lies in the fact that it not only solves the chicken-and-egg problem of early DEXs where "no one places orders" means trading cannot occur, but it 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 innovations in other variants of AMM mechanisms:

Balancer introduces multi-asset + customizable weight pools, allowing projects to set their own asset weights and distribution.

Curve addresses the high slippage issues with stablecoins by designing optimized curves to achieve lower cost asset exchanges.

SushiSwap has added a token incentive and governance mechanism on the basis of Uniswap, opening a narrative of "liquidity mining + community sovereignty";

Together, these variants propel the AMM DEX into the "protocol productization" phase. Unlike the first-generation DEXs, which are mainly idea-driven and coarse, the second-generation DEXs have begun to show a clear closed loop of product logic and user behavior: they can not only be traded, but also the structural basis of asset circulation, the entrance for users to participate in liquidity, and even a part of the project ecological launch.

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 accessory to the landing of concepts, but has begun to become the builder of the structure itself.

3. The third generation of DEX: from tools to hubs, functional expansion and ecological integration

After entering 2021, the evolution of DEX began to diverge from a single trading scenario, entering a "fusion stage" where functional spillover and ecological integration occurred in parallel. In this stage, DEX is no longer merely a "place for exchanging tokens," but gradually grows into the liquidity core of the on-chain financial system, the entry point for project cold starts, and even the scheduler 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 to deeply integrate the AMM mechanism with an on-chain order book. 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 is that it is not just "AMM optimization", but the first time that a DEX has tried to introduce a distributed reconstruction of the "CEX experience" on-chain. For new projects in the Solana ecosystem, Raydium is not only a trading venue, but also a launch venue - from initial liquidity to token distribution, listing depth, and project exposure, it is a linkage hub between primary issuance and secondary trading.

At this stage, the burst of features goes far beyond Raydium:

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

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

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

• A certain aggregator connects multiple DEXs and asset paths in the Solana ecosystem through the role of a path aggregator, 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 that connects 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 such as governance, incentives, pricing, and aggregation.

DEX, no longer identified as the "Island Protocol", has become a hub node in the DeFi world (hub primitive ) - a highly adaptable and composable on-chain consensus component.

4. Fourth-generation DEX: deformation growth in multi-chain torrents, polymerization, L2 and cross-chain experiments

If the evolution of the first two generations of DEX represents a mutation of technological paradigms, then the third phase, Raydium, is an attempt at assembling functional modules. Starting from 2021, DEX has entered a stage that is harder to categorize: it is no longer a specific team leading the "version upgrade", but rather the entire on-chain structure compelling it to undergo adaptive transformations.

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

After the launch of the Arbitrum and Optimism mainnets, the high Gas costs for transactions on Ethereum are no longer the only option, and the Rollup structure is starting to become the soil for the growth of the new generation of DEXs. GMX on Arbitrum adopts a pricing model based on oracles + perpetual contracts, addressing 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 rather rooting themselves in specific chains as "ecological infrastructure."

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

As the number of DEXs increases, the problem of fragmented liquidity quickly amplifies, and users' decision-making burden of "where to trade on-chain" gradually becomes a new challenge. From a certain aggregator launched in 2020 to later Matcha and another aggregator, aggregators have taken on a new role: they are not DEXs, but they coordinate the liquidity paths of all DEXs. In particular, a certain aggregator's rapid rise on the Solana chain is precisely due to its ability to fill the gaps in path depth, asset jumps, and trading experience.

However, the structure of DEX evolution has not stopped at on-chain adaptation. After 2021, projects like ThorChain and Router Protocol have successively launched, proposing a more radical proposition: can counterparties complete swaps without being on the same chain at all? These "cross-chain DEXs" have started to attempt 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 signals a shift in the evolution path of DEXs, moving away from reliance on a specific public chain and towards an era of inter-chain protocol collaboration.

The DEX at this stage is difficult to classify by "type": it may be a liquidity on-ramp ( an aggregator ), or a protocol coordinator (Velodrome). It is more likely to be (ThorChain) inter-chain swap mechanism. They are not "designed" like the previous generation, but more like "squeezed out by the structure".

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

2. When Pricing, Liquidity, and Narrative Converge: 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 continuously respond 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 the structural changes on the chain. Whether projects want to provide incentives, protocols need to attract traffic, or cross-chain wants to aggregate, DEX plays an increasingly significant role in "scheduling" and "..."