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

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.

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. 

Peer-to-peer protocols

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

New York University

These are protocols designed to mitigate issues in centralized exchanges such as the requirement of trust. For example, trade execution occurs automatically through a smart contract rather than through facilitation by a central exchange.

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 



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