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Non-custodial Execution Meaning

Non-custodial execution refers to the trading mechanism found on Decentralized Exchanges (DEXs). In a traditional exchange (Custodial), you deposit funds, the exchange holds them, and when you trade, the exchange updates an internal spreadsheet.

In non-custodial execution, the trade happens directly between your wallet and a smart contract (or another user's wallet). You approve the smart contract to spend your tokens, and the swap happens atomically in a single transaction.

At no point does the exchange take possession of your funds. If the trade fails (e.g., due to price slippage), the smart contract reverts, and the funds remain in your wallet.

This eliminates Counterparty Risk-the risk that the exchange will run away with your money or become insolvent while holding your assets (as seen in the FTX collapse).

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