Types of Decentralised Exchange Offices

Automated Market Makers (AMM)

Relying on smart contracts, the Automated Market Maker (AMM) system was created to solve the liquidity problem. AMMs rely on information from oracles, which provide them with straightforward information from exchanges and other platforms to determine the price of traded assets. Instead of matching buying and selling orders, AMM DEX smart contracts use pre-funded pools of assets, known as liquidity pools (LP).
These liquidity pools are funded by other users, who are then entitled to the transaction fees that the protocol charges for trading the pair on the platform. As a liquidity provider, you must deposit the equivalent value of each asset in a trading pair to earn interest on your cryptocurrency holdings, a process known as liquidity mining.
Using liquidity pools allows traders to execute orders or earn interest without third-party representation. AMM decentralized exchanges tend to be ranked by the amount of funds locked in their smart contracts, called Total Value Locked (TVL). The TVL is very important to the AMM model because, in the case of a liquidity shortage, a phenomenon called slippage occurs.

Slippage occurs when a lack of liquidity on the platform leads the buyer to pay higher-than-market prices for their order, with higher value orders facing higher slippage, which may discourage traders from using the platform.
Liquidity providers also face various risks, including Impermanent Loss (IL), which directly affects the total value of stored assets in a particular trading pair.

Order Book DEX

Order books compile records of all open orders to buy and sell assets for specific asset pairs. Buying orders indicate that a trader is willing to buy an asset at a specific price, while selling orders indicate that a trader is ready to sell a specific asset. The spread between these prices determines the depth of the order book and the market price on the exchange.
We recognize two types of order book decentralized exchanges - on-chain order book and off-chain order book. DEXs using order books typically store information about open orders on-chain, while users' funds remain in their wallets. This type of decentralized exchanges may allow traders to increase their positions using funds borrowed from lenders on their platform. Leveraged trading increases the revenue potential of a trade, but also increases the risk of liquidation as it increases the size of the position with borrowed funds that must be paid up, even if the trade does not develop according to expectations.
DEX platforms, which keep their order books off-chain, use blockchain only to process their trades and bring the benefits of centralized exchanges (CEXs) to traders. Using off-chain order books helps exchanges reduce costs and increase speed to guarantee that trades are executed at the prices users demand.

DEX Aggregators

DEX aggregators use several different protocols and mechanisms to solve liquidity issues. These platforms essentially aggregate liquidity from several different DEXs to minimize slippage on large orders, optimize fees, and offer traders the best possible price in the shortest possible time.
Protecting users from the price differential and reducing the likelihood of failed transactions are two important goals of DEX aggregators. Some DEX aggregators also use liquidity from centralized platforms to provide users with a better platform experience, all within a non-custodial framework through integration with specific centralized exchanges.

Advantages of Decentralised Exchange Offices

• Users themselves are responsible for the security of their digital assets. You keep your assets in your own cryptocurrency wallet and you are the only owner of your private keys and seeds. If you hold your assets on a CEX, your funds are owned by a third party.
• Privacy and personal data protection. Most CEXs have to comply with regulatory requirements from the relevant authorities, such as KYC, where you have to send your ID, photo and other documents required for verification to the exchange. Here comes the big advantage of a DEX, though, as they are not managed by a central authority, so there is no need to use KYC regulations.
• They work without the involvement of a third party. Decentralized exchanges follow the initial philosophy of cryptocurrencies and aspire to be transparent, anonymous and decentralized. DEXs remove intermediaries from cryptocurrency trading and provide a Peer-To-Peer trading process.

Disadvantages of Decentralised Exchange Offices good to consider before use

• Liquidity problems. Liquidity on CEXs is achieved through a huge amount of capital. DEXs often have a problem in this regard because, unlike central exchanges, their liquidity is heavily dependent on the number of users actively trading on the platform. This problem is partly solved by liquidity pools (LPs), which DEXs can use.
• Speed of transactions. Order processing on DEX can be slow, due to the fact that trades must first be sent to the network and confirmed before they can then be processed. There is, therefore, a high probability that your transaction will not be executed due to a change in the value of the assets being exchanged.
• Front-running. If a trader on a decentralized exchange has more capital, they can afford to increase transaction fees, thereby getting ahead of pending orders.
• Network risk. Since the asset exchange is facilitated by the blockchain, using a DEX may be prohibitively expensive or even impossible if the network experiences congestion or an outage.
• Vulnerabilities in smart contracts, resulting in hackers exploiting and stealing funds stored in liquidity pools on the platform.
• Almost anyone can list a token on a DEX without the listed project passing basic security verifications. Be very careful with newly listed tokens and don't buy them without conducting thorough analysis of the project with which they are associated.

Conclusion

DEXs allow users to exchange digital assets  in a Peer-To-Peer manner, without the need for intermediaries. As a result of this, their use has seen a significant increase in adoption in recent years. Many DEXs bring instant liquidity for newly listed tokens, which attracts many more investors, traders and speculators looking to profit from the market.
Let's wait and see how the next evolution of this sector in the cryptocurrency world plays out. Decentralized exchanges are expected to remain an important part of the industry’s  infrastructure, and will continue to improve in transaction scalability, smart contract security, management infrastructure, and user experience.

Personal Opinion

Decentralized exchanges help us return to the initial philosophy of cryptocurrencies, which was to move away from the modern financial system that is increasingly tailored to monitor all our financial decisions. With decentralized exchanges, we can manage our digital assets anonymously, without the need for third-party involvement. They are also accessible even in countries where cryptocurrencies are subject to strict regulations, by using an anonymous cryptocurrency wallet and a VPN (however, I do not recommend this to anyone coming from a heavily regulated country, as you could get in trouble for breaking your country´s laws).

Smart contracts on blockchains are publicly available, and their code can be checked by anyone. Moreover, the codes of large decentralized exchanges are checked by many reputable companies in order to help ensure security.
Despite this checking, which is called an audit, it is possible for a hacker to find bugs in the code that the auditors were not able to predict in the first place. Not every DEX is truly trustworthy, and past experience has shown that thefts can result in large financial losses for users, greatly affecting their motivation to continue investing their money and time in digital assets and Web 3.0. Always be prepared to accept a certain amount of risk and diversify your investments wisely. Your main task is to ensure that you are making consistent profits with the least amount of risk possible. Always DYOR!