Detailed Instructions

A Decentralized Exchange (DEX) is a peer-to-peer marketplace where cryptocurrency traders can transact directly without an intermediary. Unlike centralized exchanges (CEXs) like Coinbase, DEXs operate on smart contracts deployed on a blockchain, giving users full custody of their funds. The primary innovation of modern DEXs is the Automated Market Maker (AMM) model, which replaces traditional order books with liquidity pools.

• Sub-step 1: Identify the DEX Platform - Choose a DEX like Uniswap (Ethereum), PancakeSwap (BNB Chain), or Raydium (Solana). Each has its own smart contract address, e.g., Uniswap V2 Router: 0x7a250d5630B4cF539739dF2C5dAcb4c659F2488D.
• Sub-step 2: Connect a Non-Custodial Wallet - Use a wallet like MetaMask or Phantom. You retain your private keys, meaning you control the assets, not the exchange.
• Sub-step 3: Recognize the Trade-off - Understand that DEXs prioritize permissionless access and security over the speed and liquidity depth often found in CEXs.

Tip: Always verify the official contract addresses from the project's documentation to avoid scams.

Detailed Instructions

Liquidity Pools are the foundational smart contracts that hold pairs of tokens, enabling all trades on an AMM. Instead of matching buyers and sellers, the AMM algorithm sets prices based on the ratio of assets in the pool. Liquidity Providers (LPs) deposit an equal value of two tokens into these pools and earn fees from trades.

• Sub-step 1: Examine a Pool's Composition - A pool for ETH/USDC holds both tokens. Its price is determined by the constant product formula x * y = k, where x and y are the reserve amounts.
• Sub-step 2: Calculate Provider Share - When you add liquidity, you receive LP tokens representing your share. For example, depositing 1 ETH and 2000 USDC into a pool with 100 ETH and 200,000 USDC total gives you a 1% share.
• Sub-step 3: Review Fee Structure - Typical swap fees are 0.3% per trade, distributed proportionally to LPs. On Uniswap V2, this fee is automatically added to the pool reserves, increasing the value of LP tokens.

Tip: Use a blockchain explorer like Etherscan to check the real-time reserves of a pool contract, e.g., the WETH/USDC pool.

Detailed Instructions

The Constant Product Market Maker model, used by Uniswap, ensures liquidity by maintaining the invariant reserve_a * reserve_b = constant. When a swap occurs, the product of the two reserves must remain constant (minus fees), which automatically determines the execution price.

• Sub-step 1: Determine Input Amount - Decide to swap 1 ETH for DAI. If the ETH/DAI pool has reserves of 100 ETH and 400,000 DAI, the constant k = 100 * 400,000 = 40,000,000.
• Sub-step 2: Calculate Output with Fee - The protocol charges a 0.3% fee. The input amount minus fee is 1 * 0.997 = 0.997 ETH. New ETH reserve = 100 + 0.997 = 100.997. New DAI reserve = k / 100.997 = 40,000,000 / 100.997 ≈ 396,027.64. Output DAI = 400,000 - 396,027.64 = 3,972.36 DAI.
• Sub-step 3: Account for Slippage - Slippage is the difference between expected and actual price. Large orders change the reserve ratio more. Set a slippage tolerance (e.g., 0.5%) in your wallet to prevent unfavorable trades.

Tip: Use the getAmountsOut function in a contract call to preview your swap output before submitting the transaction.

Detailed Instructions

Becoming a Liquidity Provider (LP) involves depositing two tokens in a specific ratio defined by the pool's current price. In return, you earn a portion of all trading fees, but you are exposed to Impermanent Loss—a temporary loss compared to simply holding the assets, caused by price divergence.

• Sub-step 1: Deposit Equal Value - To add liquidity to an ETH/USDT pool, you must deposit amounts of ETH and USDT of equal USD value. If 1 ETH = $2000, and you deposit 1 ETH, you must also deposit 2000 USDT.
• Sub-step 2: Receive and Manage LP Tokens - The pool mints LP tokens (e.g., Uniswap V2 LP tokens) to your wallet. To remove liquidity, you burn these tokens to reclaim your share of the pool, which will have changed based on all intervening trades.
• Sub-step 3: Calculate Impermanent Loss - If the price of ETH doubles relative to USDT after you deposit, the AMM rebalances the pool, giving you less ETH and more USDT than if you had just held. The loss can be calculated with online tools or the formula: IL = 2 * sqrt(price_ratio) / (1 + price_ratio) - 1.

Tip: Use a platform like Zapper.fi to easily track your LP positions, fees earned, and impermanent loss across different protocols.

Detailed Instructions

First, you must connect a non-custodial Web3 wallet like MetaMask, WalletConnect, or Phantom to the DEX's front-end application. This connection does not give the DEX control of your funds; it only allows it to read your public address and request transaction signatures.

• Sub-step 1: Navigate to the DEX website (e.g., app.uniswap.org) and click the 'Connect Wallet' button.
• Sub-step 2: Select your wallet provider from the modal list. For MetaMask, a browser extension pop-up will appear requesting connection to the site.
• Sub-step 3: Authorize the connection by signing a one-time message in your wallet. This proves you own the address without spending gas.

Tip: Always verify you are on the correct, official website URL to avoid phishing scams. Never share your private keys or seed phrase.

Detailed Instructions

Define the parameters of your trade by selecting the input token you wish to sell and the output token you wish to buy. You must also decide whether to specify an exact 'Input' amount or a desired 'Output' amount, which affects the trade's slippage tolerance.

• Sub-step 1: Choose input token. Click the 'From' dropdown, which may show your wallet balance. For example, select ETH.
• Sub-step 2: Choose output token. Click the 'To' dropdown and search for a token by symbol or contract address, e.g., USDC.
• Sub-step 3: Enter the amount. Input 1.5 in the 'From' field. The interface will automatically fetch and display the estimated output amount, like 4500 USDC, based on the current liquidity pool rates.

Tip: For tokens not in the default list, you may need to paste the contract address (e.g., 0xA0b86991c6218b36c1d19D4a2e9Eb0cE3606eB48 for USDC on Ethereum) to import them. Always verify the token contract.

Detailed Instructions

Before executing, carefully review the quote provided by the DEX's automated market maker (AMM) smart contract. Key metrics include the exchange rate, estimated gas fee, price impact (how much your trade moves the market), and the liquidity provider fee (often 0.3% on Uniswap V2).

• Sub-step 1: Check the quote details. Look for the '1 ETH = 3000 USDC' price, a price impact of 0.5%, and a network fee of 0.005 ETH.
• Sub-step 2: Adjust slippage tolerance. Click the settings icon. For stable pairs, 0.5% may suffice. For volatile assets, you might set it to 1% or 2% to prevent transaction failure.
• Sub-step 3: Set transaction deadline. This is the time (e.g., 20 minutes) after which the trade will revert if not mined, protecting you from stale quotes.

Tip: High price impact on large trades can be mitigated by using a DEX aggregator (like 1inch) that splits the trade across multiple pools for a better effective rate.

Detailed Instructions

If you are selling an ERC-20 token (not the network's native gas token like ETH), you must first give the DEX's router contract permission to withdraw that token from your wallet. This is done via an approve transaction.

• Sub-step 1: Initiate the swap. After clicking 'Swap', your wallet will prompt you for two signatures. The first is the approval.
• Sub-step 2: Review the approval transaction. It will call the approve function on the token's contract, specifying the DEX router as the spender and an amount (often set to the maximum 2^256 - 1 for unlimited future approvals).

solidityCopy
// Example function call
IERC20(tokenAddress).approve(routerAddress, type(uint256).max);

• Sub-step 3: Pay gas and confirm. Sign and broadcast the approval transaction. This is a separate gas cost from the swap itself.

Tip: You only need to do this once per token per DEX router contract. You can check or revoke allowances using tools like Etherscan's 'Token Approvals' feature.

Detailed Instructions

The final step is to sign the swap transaction itself. This instructs the DEX's router contract to execute the trade against the liquidity pools, transferring tokens between the parties involved.

• Sub-step 1: Confirm the swap transaction. After token approval, your wallet will prompt for the main swap. Review details: input 1.5 ETH, minimum output 4477.5 USDC (factoring in 0.5% slippage), and recipient address (your wallet).
• Sub-step 2: Sign and broadcast. The transaction will call a function like swapExactTokensForTokens on the router contract.

solidityCopy
// Example function signature
swapExactTokensForTokens(amountIn, amountOutMin, path, to, deadline);

• Sub-step 3: Monitor confirmation. After signing, a transaction hash (e.g., 0xabcd...1234) is generated. Use a block explorer like Etherscan to track its status from 'Pending' to 'Success'.

Tip: If the transaction fails due to slippage (price moved beyond your tolerance), you will lose gas but not the principal. You can adjust your slippage and resubmit.