What is Decentralized Exchange (DEX)?
DEX (Decentralized Exchange) is known for trying to offer alternatives by operating as a decentralized exchange compared to centralized exchanges. DEX (Decentralized Exchange) is also described as a peer-to-peer marketplace that connects cryptocurrency buyers and sellers.
Unlike centralized exchanges, decentralized platforms are not kept under surveillance, in other words, the user continues to operate under the control of their private keys while transacting on the DEX platform. In the absence of a central authority, DEXs use smart contracts that are self-executing under certain conditions and record every transaction on the blockchain. The protection of these transactions represents an accelerating segment of the digital asset market and is leading new financial products.
Traditional stock and price exchanges combine buyers and sellers in one place, allowing investors to enter and exit positions easily at certain points, providing liquidity to the market. Higher liquidity increases the likelihood that there will be people on the other side of the trade that are willing to trade with the buyer or seller. Since cryptocurrency exchanges are also known as centralized exchanges, their platforms can be decentralized or decentralized while facilitating the trading of blockchain-based digital assets. Centralized exchanges act as trusted intermediaries in transactions, often acting as custodians who can store and protect private keys and thus funds.
Features of DEX
Leading centralized crypto exchanges facilitate every aspect of the digital asset trading experience, from security and fair market pricing, to regulatory compliance, consumer protection and access to the latest digital assets. Many centralized exchanges require fiat or crypto money to be deposited in a crypto wallet held on the exchange before trading. It is also possible to transfer money to a crypto wallet other than the exchange wallet. You can also exchange crypto for fiat and withdraw money from bank accounts.
In September 2020, CEXs (Centralized Exchanges) accounted for around 95% of all crypto trading volume, while decentralized exchanges were peer to peer trading and emerging decentralized finance. It has emerged as an alternative to CEX platforms that offer access to the industry. Currently, there are more than thirty-five decentralized exchange options.
In January 2019, DEX platforms represented only 0.11% of global trade volume, while this number increased to 6% by August 2020. The monthly trading volume on decentralized exchanges was worth $20 billion as of October 2020. DEX platforms take a different approach to facilitate trading of digital assets. Rather than using a brokerage to clear transactions, DEXs leverage the functionality of self-executing smart contracts. DEXs follow a non-custodial course where control of the private keys and cryptocurrency funds generated can be retained. There is no counterparty risk problem for DEXs, in other words, there is no credit liability risk and they do not follow “Know Your Customer” or Anti-Money Laundering protocols.
Advantages of DEXs
Even in the early stages of developing decentralized crypto exchanges, digital asset storage offers advantages that impact diversity, transaction security, trading fees, and investor privacy.
Disadvantages of DEXs
The disadvantages arising from the use of a decentralized exchange also create barriers to this exchange, due to its widespread adoption. These shortcomings also affect DEX’s scalability, user experience, market liquidity and mobility of capital.
Storage
DEXs are not custodian, meaning merchants do not need to relinquish control of private keys to transact. Instead, externally held wallets interact with DEXs and transact themselves via smart contracts. Centralized exchanges, on the other hand, assume a protective role for funds by controlling private keys. This situation creates the necessity for individuals to give up private key control. With such a requirement, centralized exchanges offer assurance and protection.
Variation
As of October 2020, there are over 7,400 cryptocurrencies on the market. CEXs exercise control over the cryptocurrencies they list, often listing only those with sufficient trading activity, prevalence, and effective security standards to ensure profitability and regulatory compliance. Individuals can access many altcoins only through DEX, where peer-to-peer transactions can occur without high transaction volumes. This access provides a wider opportunity for participation in digital assets and an increase in financial participation.
Scalability
Blockchain scalability depends on the number of transactions the network can process before reaching capacity. For example, the Bitcoin network processes 4.6 transactions per second (Transactions Per Second, TPS), while Ethereum reaches 15 transactions per second (TPS). Decentralized exchanges operate using smart contracts that live on blockchain networks. Therefore, DEXs depend on the boundaries of underlying network infrastructures.
User experience
DEXs are currently in their early stages of development and can be difficult to use for individuals less familiar with decentralized blockchain technology. First, users need to be familiar with external wallet platforms in order to interact with a DEX. Next, they need to fund their wallets by transferring fiat or cryptocurrency. Finally, they need to connect this wallet to the DEX interface in order to trade. The deposit process for trading on the DEX platform is made noticeably simpler than on the CEX platform.
Liquidity
Because DEXs are still new in many ways and support a variety of trading partners, market segregation has a negative impact on market liquidity. However, asset liquidity is increasing significantly with the growth of DeFi (Decentralized Finance).
Open and Closed Ramps
Current DEX technology does not facilitate the purchase of digital assets with fiat currency such as the US dollar. In other words, there is no fiat purchase-sell transaction or money transfer to the bank account. While stable (stable) coin technology is emerging to replicate the role of fiat in the DeFi (Decentralized Finance) ecosystem, the absence of fiat on and off ramps is a barrier to entry for new users.
Future Stock Exchanges
Although centralized exchanges still dominate the crypto markets and serve the needs of everyday crypto traders and investors, decentralized alternatives offer an interesting alternative. Through on-chain smart contracts, DEXs provide a reliable method to connect buyers and sellers and offer new fair participation and governance models for partners. Additionally, these platforms are still in the process of being upgraded, and further improvement of the user experience, development of infrastructure, improved scaling mechanisms, and increased connectivity to central crypto and legacy financial institutions will be necessary to drive their adoption in the future.
DEX Price Data
The current DEX coin market supply has 191,542,291 and does not have a maximum supply. DEX (DEX) is a cryptocurrency and runs on the Ethereum platform. The DEX has a current market supply of 191,542,290.51 to 1,892,996,914. The last known price of DEX is known as 0.00687311 USD. Currently, US$23,397.25 is traded in three active markets in the last 24 hours.
What is the Difference Between a Centralized and Decentralized Exchange?
Users’ credentials are available on centralized exchanges and currencies are held in the accounts of the service provider company. Decentralized exchanges do the opposite.
Centralized exchanges are run by a for-profit company or individual. Such exchanges are obliged to protect user data and transaction details. The platform completely controls the activities and makes important decisions for the development of the service on its own.
In contrast, decentralized exchanges are managed automatically or semi-automatically with the support of platform participants in making key decisions. Such platforms allow direct interaction between participants. They use a distributed ledger to store and process all data. The decentralized exchange does not store funds or user personal data on its servers. It serves as a platform to find matches for the sole purpose of buying or selling.
Is It Possible to Trade Bitcoin on DEX?
In February 2021, X9 developers managed the first BTC in a DEX. Unfortunately, it’s all about a DEX built on the Bitcoin blockchain, whereas the best and most reliable DEXs are built on Ethereum. Until recently, blockchains were impossible. However, all quickly.
For example, Wrapped BTC (WBTC) provides a way to use Bitcoin (BTC) in the Ethereum block. Together, with no approaching BTCB in a DEX, WTC is platforms for printing storage, which is all considering the premise of a DEX. The same process happened in one of the new additions of 2021, the Badger DAO Ethereum DEXs, giving up the likes of BTC and the closest. The Badger DAO cannot use secure BTC on Ethereum, but similar to WBTC, using the decentralized DIGG token for the working client, BTC can now be redeemed in other blocks. With this step forward, it’s only a matter of time before BTC is tradable on Ethereum DEXs.
How to Make Money on Decentralized Exchanges
- Trading exchange
DEX is the most practical way to make money, it uses it like a currency exchange. They can be bought quickly to get older, the market, and conversion rates within the city.
- liquidity provider
Fees for peer-to-peer exchanges are between liquidity providers, and that’s a fraction of the money. These fees start with different D’s shows between shows, transitions, risks grandparent. It shows in DEXs as a liquidity provider: while you have the same amount of value, it offers higher applications to provide its native tokens (e.g. CAKE in pancakeswap).
What Types of DEXs Are There?
There are several types of DEX, but there are three that currently dominate the market.
Order book exchange: The order book exchange (the original DEX) works more closely to a traditional exchange. They organize assets and trading pairs based on trading prices and external information. This means there is higher volatility during trading. Additionally, they require their users to deposit assets on the exchange before making a trade. Because the cryptocurrency market is changing as quickly as it is, this additional time to deposit assets can be disadvantageous for traders.
Automated market maker (AMM) exchanges, also known as swap exchanges: As a fully automated platform, AMM exchanges like Uniswap allow instant swaps with low fees. Additionally, they do not require assets to be deposited on an exchange prior to settlement. They also rely on the pricing algorithm rather than external information that can affect costs and lead to a rise or fall. This makes them more transparent than the order book exchange.
DEX aggregators: These types of DEXs use their technology to monitor crypto prices in all DEX markets to offer the buyer the cheapest possible exchange rate.
What is DEX Crypto?
DEX also exists as a cryptocurrency, although it is only listed at number 2145 on coinmartketcap.com, it cannot be considered a popular coin. It is currently trading at just $0.006905 per token with a live market cap of $134,183. Built on the Ethereum network and launched in October 2018, it had a peak at the height of the 2018 bull run, but has since dropped well below its initial cost of around $0.06.
Most Popular DEX Tokens
DEX tokens can have a range of use cases on their native protocol, such as staking for rewards, voting, and more.
- Uniswap and its UNI Token
Uniswap is an Ethereum-based DEX automated liquidity protocol. Users do not need an order book or a centralized party to make trades. Uniswap is also open-source, meaning anyone can use the source code and make their own decentralized exchange. Moreover, users can launch any ERC-20 token on Uniswap and list them for free as long as they can supply tokens to the liquidity pool.
UNI is the protocol’s native token, and its main function is to govern the Uniswap ecosystem.
Uniswap (UNI), at a price of $5.46 and $3.93B market cap as of 30 May 2022
- PancakeSwap and its CAKE Token
PancakeSwap is a BNB Smart Chain-based DEX. Users can swap BEP-20 tokens on PancakeSwap without trusting their funds to an intermediary. Users can earn rewards by staking tokens in the liquidity pools and, like Uniswap and many other DEXs, PancakeSwap is powered by an automated market maker (AMM) model, relying on user-backed liquidity pools to support trades.
CAKE is the governance token that powers the PancakeSwap ecosystem. CAKE holders can vote on the direction of the ecosystem, buy lottery tickets in the PancakeSwap lottery, use it in yield farms to earn more CAKE, stake it in liquidity pools to earn more tokens, and much more!
PancakeSwap (CAKE), at a price of $4.78 and $815.53M market cap as of 30 May 2022
- Stellar and its XLM Token
Stellar is a decentralized, open-source payment protocol that allows any form of money to be moved and stored at a low cost. Serving as a DEX with a built-in order book, users can manage buy/sell orders and reliably convert cryptocurrencies to fiat or vice versa. XLM is Stellar’s native token that acts as an intermediary currency in transactions.
Stellar (XLM), at a price of $0.13 and $3.48B market cap as of 30 May 2022