In decentralized exchanges (DEXs), routing is the process of finding the most efficient path for executing a trade, ensuring that users get the best price for their transactions. Unlike centralized exchanges, DEXs operate on blockchain networks and often use automated market maker (AMM) protocols, where liquidity pools rather than order books facilitate trades. Routing in DEXs is particularly important because it optimizes how trades move through various liquidity pools to minimize slippage (price deviation) and maximize output.

When a trader initiates a trade on a DEX, the platform may analyze multiple potential paths across different pools and tokens. For example, if a user wants to trade Token A for Token C, but the direct liquidity pool for that pair is low, the DEX may use a multi step route like token A, token B, and token C, accessing better liquidity along the way.

Advanced DEXs often employ routing algorithms to automatically calculate the most favourable paths based on liquidity, fees, and price impact. These algorithms sometimes aggregate liquidity from multiple DEXs, known as DEX aggregators, providing users with optimized trading routes across platforms. Routing helps ensure that users receive the best possible price for trades, enhancing efficiency in decentralized trading environments.