Who holds the coins in a decentralized exchange?

[Kprawn]

I don't think anyone has figured out how to create a decentralized crypto-fiat exchange without relying on a trusted party.

It may end up possible at least in places like China where you do have basically irreversible fiat txs online (with the likes of Alipay) although certainly not currently.

How does "Alipay" work? .... They look huge with 300 million users ..... Is this some sort of Escrow service for fiat transactions? I like the zero transaction fees and the fact that they are backed by the Alibaba Group.

How can this be extended beyond the Chinese borders for international users and to enable decentralized exchanges? {Do they just escrow the fiat conversion?}

Thank you for the info sofar, I knew about Alibaba, but not about Alipay.  -- The pipe dream for a decentralized exchange could just turn into a reality after all.     

[CIYAM]

Think of PayPal without the exorbitant fees (no fees for buyers and 1% for sellers) and you have Alipay (it works with Taobao which is the Chinese equivalent of Amazon as well as can be used to pay for meal vouchers, airplane tickets, etc.).