These are smart-contract based liquidity pools that contain at least two cryptoassets in reserve. The exchange rate is set through a constant product model. Users engage directly with the pool to exchange assets.

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* Decentralized order book exchanges
* Constant function market maker
* Smart contract-based reserve aggregation
* Peer-to-peer protocols

Types of decentralized exchange protocols

Schär, Fabian, Decentralized Finance: On Blockchain- and Smart Contract-based Financial Markets (March 8, 2020). Available at SSRN: https://ssrn.com/abstract=3571335 or http://dx.doi.org/10.2139/ssrn.3571335 



Decentralized Finance: On Blockchain and Smart Contract-based Financial Markets

These exchanges use smart contracts for transaction settlement. We can distinguish two types of order book exchanges based on how order books are hosted.

Decentralized order book exchanges

Constant function market maker

A type of protocol that uses a smart contract to consolidate liquidity reserves and lets liquidity providers advertise prices for specific trades. The smart contract will compare prices and it accepts the best offer for a user, executing the trade.

Smart contract-based reserve aggregation

First, participants query a network to find a counterparty to trade with. Then, the two parties bilaterally negotiate a price. A smart-contract executes the trade on-chain once  a price is agreed upon. 

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