China's ban on crypto has sent traders piling into decentralized exchanges. Here's a look at what DEX is and what tokens to watch

• China's crypto ban last week has sent traders flocking to decentralized exchanges.
• These peer-to-peer platforms allow parties to trade without any intermediary, even a clearing house.
• We take a look at how these exchanges work and which coins are the "DEX" big guns.

The crypto market bounced back on Monday from the slump caused late last week by China's outright ban on trading and mining. But it's not been the major cryptocurrencies that have seen most of the action, or even some of the recent red-hot "altcoins", but rather, decentralized exchange (DEX) tokens.

Decentralized exchanges don't rely on any intermediaries, as a standard centralized exchange would. There are no banks or brokers, or even clearing houses involved, but rather, they offer a peer-to-peer platform where the parties involved use smart contracts to execute their trades.

These contracts are mini-programs that run on a blockchain that will automatically execute once a set of conditions are met. A number of decentralized exchanges are built on the ethereum network - the largest such blockchain that hosts smart contacts, decentralized finance applications and other protocols.

They are often cheaper to use than centralized exchanges, like Binance or Coinbase, and mean users are completely in charge of managing their wallets and private keys, which allow them access to their crypto tokens.

The three biggest decentralized exchanges by volume are Uniswap, SushiSwap and derivatives exchange DxDy.

"Decentralized exchanges Uniswap and Sushiswap have seen a surge in usage, which is likely a result of China's ban on centralised exchanges. Since DEX's only require a crypto wallet and no KYC [know your customer], it is much easier to use and can be set up in a matter of minutes," Jonas Luethy, junior sales trader at digital asset manager Global Block, said in a newsletter.

There are basically three different ways a DEX will function.

The first is with what's known as an on-chain order book that lists all buy and sell orders sorted by price. In this case, every part of the transaction is written onto the blockchain. That includes not just purchases and sales, but even requests to buy or sell. So all the information is stored safely in one place, but this process can be costly and slower.

Off-chain order books only record the final settled transaction on the blockchain, without storing orders or any other information. It's faster, but a little less secure than on-chain.

Lastly, there are automated market makers (AMM) that use what are known as liquidity pools. The pool is essentially made up of a big enough reserve of tokens, or pairs of tokens.

A user will just place the tokens they wish to sell or buy in the pool and one smart contract will complete their transaction. This method makes it much easier to swap from one cryptocurrency to another than with an order book, for example.

Here are the top 3 DEX tokens to watch out for:

1. Uniswap is the biggest token, with a market capitalization of over $14 billion. The token surged by almost 40% at one point on Monday. It's up around 360% so far this year at around $23.40.
2. Sushi is the second biggest token, with a market cap of over $1 billion. Its token, which has risen around 270% this year to $10.70, rallied by nearly 30% earlier on Monday.
3. DYDX gained by as much as 31% Monday. The underlying exchange has seen a massive influx of new users plus, and for the first time, has registered higher trading volumes than Coinbase, according to GlobalBlock. The dydx token launched around a month ago and has already roughly doubled in value to around $20.00.