The Five-Year Evolution of DEX: From Marginal Tool to On-Chain Financial Cornerstone

DEX: The Misunderstood On-Chain Financial Cornerstone

In the crypto financial ecosystem, DEX has always played a unique and complex role. It is always online, without downtime, censorship, or exit scams, but has long been in a marginal position: complex interfaces, insufficient liquidity, and a lack of appeal. During the DeFi explosion, it was seen as an alternative to CEX; after the bear market arrived, it was labeled as "safe, self-custodial," as if it had become a relic of the DeFi era.

However, in the long run, DEX has been quietly evolving and beginning to reshape the underlying logic of on-chain finance. The rise of Uniswap is just one node in its development history, while projects like Curve, Balancer, Raydium, and Velodrome showcase the diversity of DEX. The evolution of all AMMs, aggregators, and L2 DEXs is driven by the self-evolution process of distributed financial infrastructure.

This article attempts to step out of the perspectives of "product comparison" and "track trends," reviewing the historical evolution of DEX and exploring its structural logic:

• How DEX has evolved from on-chain tools to structural infrastructure
• How it absorbs financial mechanisms and ecological goals from different periods
• Why does DEX become an unavoidable topic when we discuss project initiation, cold start, and community self-organization?

This is an evolutionary history of DEX and a structural observation of the "function overflow" of decentralization. Finally, we will attempt to answer an increasingly important question: Why does it seem that every project is inseparable from DEX in the Web3 era?

1. A Five-Year Brief History of DEX: From Marginal Tool to Ecological Core

1. First Generation DEX: Expression Against Centralization ( EtherDelta Era )

Around 2017, when centralized exchanges were at their peak, a group of crypto enthusiasts quietly launched the experimental project EtherDelta on-chain.

Compared to the user experience of CEXs like Binance and OKEx during the same period, EtherDelta's user experience can almost be described as a "disaster": transactions require manual input of complex data, there is high interaction latency, and the interface is as rudimentary as a webpage from the last century, making it difficult for ordinary users to accept.

But the significance of EtherDelta lies not in its ease of use, but in its complete departure from "centralized trust": users have full control over their assets, and order matching is all done on the Ethereum链上, without the need for intermediaries or trust in third parties. Ethereum founder Vitalik Buterin has publicly expressed his optimism about this model, believing that on-chain decentralized trading is one of the important directions for blockchain applications.

Although EtherDelta eventually faded away due to technical and user experience issues, it laid the foundation for the development of DEX: user asset self-custody, on-chain order matching, and no need for custodial trust. These characteristics became the basic framework for the continuous evolution, derivation, and expansion of DEX in the future.

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 made this ideal scalable for the first time.

In 2018, Uniswap launched version 1, introducing the automatic market maker (AMM) mechanism on-chain for the first time, completely breaking the limitations of traditional order book matching models. Its core trading logic is simple yet revolutionary: x * y = k. This formula allows liquidity pools to price assets automatically without the need for counterparties or orders. By injecting one asset into the pool, another asset can be automatically obtained according to the constant product curve. No counterparties, no orders, no matching; trading behavior is equivalent to pricing behavior.

The breakthrough of this model lies in the fact that it not only solves the early DEX issue of "no orders means no trading", but fundamentally changes the source of liquidity for on-chain transactions: 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 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 swaps.
• SushiSwap introduced token incentives and governance mechanisms based on Uniswap, starting the narrative of "liquidity mining + community sovereignty."

These variants collectively drive AMM DEX into the "protocol productization" stage. Unlike the first-generation DEXs, which were primarily ideology-driven and roughly shaped, the second-generation DEXs have already demonstrated 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 users to participate in liquidity, and even a part of the project's ecological initiation.

It can be said that since Uniswap, DEX has truly become a "product" that can be used, grown, and accumulate users and capital for the first time------no longer an accessory to the landing of concepts, but has started to become 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 overflow and ecological integration run parallel. In this stage, DEX is no longer just a "place to exchange tokens," but gradually becomes the core of liquidity in the on-chain financial system, an entry point for project cold starts, and even a dispatcher of ecological structures.

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 books. 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 of "automated market making + passive order placement" coexisting. This model combines the simplicity of AMM with the visible price levels 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 "CEX experience" through distributed reconstruction on-chain. For new projects in the Solana ecosystem, Raydium is not only a trading venue but also a launching pad------from initial liquidity to token distribution, order book depth, and project exposure, it serves as a hub for the connection between primary issuance and secondary trading.

In this phase, 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 DEX ecosystem.
• PancakeSwap combines features such as blockchain games, NFT markets, and on-chain lotteries to operate as a DEX platform on the BNB Chain.
• Velodrome(Optimism) introduced "inter-protocol liquidity scheduling" based on the veToken model, allowing DEX to act as a coordinator between protocols rather than just serving users.
• Jupiter serves as a path aggregator within the Solana ecosystem, connecting multiple DEXs and asset paths, and 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 a relay network that connects assets, projects, users, and the protocol.

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

DEX, from this day forward, shedding its identity as the "island protocol" and becoming the hub of the DeFi world (hub primitive )------ a highly adaptable and composable on-chain consensus component.

4. Fourth Generation DEX: Morphological Growth in the Multi-Chain Torrent, is Aggregation, L2 and Cross-Chain Experiments

If the evolution of the first two generations of DEX represents a paradigm shift in technology, the third stage of Raydium is an attempt to piece together functional modules. Starting in 2021, DEX entered a more difficult-to-classify stage: it is no longer a specific team leading the "version upgrade," but rather the entire on-chain structure 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 is beginning 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 "AMM is insufficient to solve depth" issue with a minimalist path and a structure without LP pools. 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; instead, they are taking root on specific chains in the form of "ecological supporting facilities."

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

As more DEXs emerge, the problem of fragmented liquidity quickly intensifies, and users' "where to trade" on-chain gradually becomes a new decision burden. From 1inch, which launched 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 switching, and trading experience.

However, the evolution of DEX structures has not stopped at on-chain adaptation. After 2021, projects like ThorChain and Router Protocol went live one after another, proposing a more radical proposition: can both parties to a trade 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 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: the evolutionary path of DEXs has moved away from a specific public chain and is entering an era of inter-chain protocol collaboration.

At this stage, DEXs are difficult to classify using "types": they could be liquidity entry points like ( 1inch ), or protocol coordinators like ( Velodrome ), and even more likely be cross-chain swapping mechanisms like ( ThorChain ). They are not "designed" like the previous generation, but rather "squeezed out by structure".

At this stage, DEX is no longer just a tool, but rather an environmental response------an adaptive product used 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 "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 constantly respond to the real needs on-chain------from matching and market-making to aggregation and cross-chain, each transformation of DEX is a natural filling of a structural vacancy.

At this stage, DEX is no longer a "feature point" on a specific chain; it resembles a "default adaptation layer" after the structural changes on-chain. Whether it is a project wanting to provide incentives, a protocol needing to attract users, or cross-chain wanting to aggregate, DEX plays an increasingly significant role in "dispatching" and "coordinating."

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

On CEX, it is necessary to list coins, negotiate resources, and build a community; when launching on-chain, it is essential to create liquidity pools, find liquidity, and stimulate the circulation of existing assets. These seemingly scattered issues ultimately converge into a core challenge: who will provide the startup structure for new projects during the cold start?

In the early cryptocurrency market, Launch was 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 problems such as high entry barriers, insufficient transparency, and excessive centralized power.

As DEX gradually掌握了定价,