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Blog|Exchange|DEX Cryptocurrency Exchange
Published April 26, 2022|10 min read

DEX Cryptocurrency Exchange

The ideas and principles of decentralized crypto exchange favorably distinguish it from its competitors represented by centralized counterparts. What are DEX advantages and their further perspectives?

1. TOP 5 Best Decentralized Crypto Exchanges

To fully appreciate the features and functionality of DEX, get to know the best decentralized crypto exchange. Any of them will be your best choice.

1.1 Uniswap

If you want to trade on the best-decentralized crypto exchange that ranks #1 in the top 10 exchanges, welcome to Uniswap. It is Ethereum blockchain-based DEX with the following features:

·         Two versions of the exchange protocol are available: according to the first protocol, transactions were conducted only in pairs with ETH, while the second one canceled this restriction, linking them to the standard ECR-20.

·         Liquidity is provided by the AMM algorithm.

·         Anonymity of traders is guaranteed by the absence of any registration procedure.

·         Opportunity to become a liquidity provider.

·         Detailed statistics on tokens, pools, and transactions.

1.2 dYdX

The  dYdX decentralized crypto exchange also does not require registration, allowing any user who has opened a wallet to trade. The advantage of this DEX is the possibility to not only trade but also take loans from the global liquidity pool at a dynamic interest rate. The exchange is also tied to the Ethereum blockchain technology. The easy process of obtaining a loan and the floating rate make this platform very attractive to borrowers.

Due to the fact that there are not so many large DEX platforms for lending, dYdX is very popular. Moreover, there have been no complaints from investors about unreturned funds over the years of this DEX cryptocurrency exchange operation.

1.3 PancakeSwap

Unlike the previous two exchanges, PancakeSwap works on the basis of the Binance blockchain. Among other things, this decentralized cryptocurrency exchange attracts users with interesting lotteries and the opportunity to place bets. Here are some of its characteristics:

·         AMM protocol.

·         Conducting lotteries, during which, users can win a certain percentage of the pool and get other prizes.

·         The possibility to win, hold or sell NFTs.

·         Farming and staking features.

·         The opportunity to bet on BNB/USDT price changes.

1.4 Kine

The platform is designed not only for beginners but also focuses on the needs of professional investors. To do this, it recently developed a new protocol to allow participation in derivatives markets. Its characteristics:

·         AMM protocol with the possibility of peer-to-peer protocols

·         Ethereum blockchain capacities

·         Features of staking, farming

·         Guaranteed overcollateralized liquidity pool

1.5 SpookySwap

Among the new best-decentralized crypto exchanges, it is worth highlighting SpookySwap. Like the majority of other DEXes, it uses AMM protocol but for Fantom Opera blockchain. SpookySwap offers to its users:

·         fast transactions and their confirmations

·         ease of transactions provided by developers' focus on carefree fun

·         automatic liquidity pools

·         comprehensive analytics and audit

2. What Are Decentralized Exchanges (DEXs)

Over the past centuries, and especially in the 20th and the 21st, people have become accustomed to trading with the help of intermediaries in the form of banks. A simpler trade in the peer-to-peer mode faded into the background and survived only in a few places. It was proposed to return these simpler financial relationships through a decentralized crypto exchange. They include the following features:

·         distributed ledger technologies

·         principle of not storing funds on DEX cryptocurrency exchange servers

·         protection of personal data of users by not keeping them on servers as well

·         providing a platform for the purchase of user assets without the aim of making a profit for the owner or management of DEX is the sole mission of decentralized crypto exchange

·         finding matches on applications for all user transactions

Of course, a decentralized cryptocurrency exchange has its own servers, with the help of which, it conducts all transactions. But due to the fact that non-custodial wallets involve the storage of private keys exclusively by crypto owners themselves, they do not have access to wallets. In contrast, traditional banks and exchanges have access to customer passwords, and therefore, they have a lower level of security.

3. How Do DEXs Work

Since decentralized exchange crypto is based on a distributed architecture, participants of the network provide all operations that are conducted on the platform. Peer-to-peer technology assumes that all participants of the network (or users of some platform) fulfill at least a triple function:

·         They are making transactions as regular users.

·         They provide their server capacity to store distributed information.

·         They take part in the decision-making process of a decentralized crypto exchange if the network works in semi-automatic mode.

Another type of DEX exchange crypto is based on fully automatically executed protocols called smart contracts. Thanks to them, all agreements, sealed with digital signatures, are carried out automatically without the need for additional commands.

4. Kinds of Decentralized Exchanges

Although a lot of models were proposed, only three main ways to trade crypto on decentralized exchange crypto have gained essential support.

4.1 Automated market makers (AMMs)

AMM is the most popular DEX protocol. The whole DeFi ecosystem is unthinkable without this tool and its principles of work:

·         Mathematical formulas are the main instrument for calculating the value of crypto assets.

·         In AMM systems, the rule of availability of liquidity pools applies. There is no need for cryptocurrency exchange orders here.

·         These “liquidity pools” are formed by users holding part of their crypto assets in a smart contract. For this, they receive a reward, and their funds are used for transactions.

·         Thanks to this mechanism, there is no need for a second partner to complete the transaction.

·         The price and liquidity within the transaction are provided by smart contracts. Peer-to-peer contracts are also possible.

4.2 Order book DEXs

The order book records all transaction information, from the purchase request to the act of buying itself, including the rejection, if any. This method has certain disadvantages that have not been overcome to date:

·         Since each transaction is recorded and situated in the blockchain, this principle of the decentralized crypto exchange work is quite expensive.

·         It requires a huge amount of network nodes for smooth transactions.

·         Due to the need to carry out all these procedures, it is slow and cannot function in real-time.

To optimize the operation of the order book, most information can be stored off the blockchain. Then, this operation will become cheaper and faster. But at the same time, the question of the security of its part stored outside the blockchain will arise.

4.3 DEX aggregators

The aggregator unites several best decentralized crypto exchanges into one, thereby increasing the liquidity pool. At the same time, users do not need to check rates separately for every exchange. To carry out a transaction for any customer in the most profitable way, the platform uses API. Thanks to this mechanism, the user makes a deal at the most favorable exchange rate without putting any effort into it and without wasting time searching for information.

5. Use Of DEX Cryptocurrency Exchange

·         To start using the services of the best decentralized crypto exchange, you need to create a cryptocurrency wallet.

·         To do this, select the platform you are interested in and download the application or open an online coinbase wallet.

·         You will be offered a user agreement and asked to sign it.

·         If it is an aggregator, you need to select the network you want to use.

·         Once your wallet is connected, you can fund your account and start buying, trading, and exchanging crypto.

Decentralized crypto exchanges allow you to receive additional income. They even compete with each other in offers to attract new users. The most basic and common way is to offer your own assets for a liquidity pool. Besides, you can bet on the rise in the price of a crypto pair, participate in lotteries, etc.

6. Pros and Cons

The decentralized cryptocurrency exchange was designed as a counterbalance both to centralized crypto exchange and the traditional banking system. This initial mission determines DEX advantages:

·         Democratic open-source platform.

·         High speed of almost instant transactions, which leads to greater scalability.

·         Anonymity of users that don’t care anymore that some financial body keeps all information about them and their transactions.

·         High level of security for user transactions due to the impossibility to hack DEX exchange crypto.

·         A user cannot be blocked because of the absence of any central authority.

·         Third parties, including governments, cannot intrude into DEX operations and gather information on users.

·         Control of network participants’ assets is accomplished solely by themselves.

Looking at the advantages of DEX, one might say that it is the best place for keeping and trading crypto. That could be true, and possibly, one day, the performance of DEX will be ideal, but currently, decentralized cryptocurrency exchange has limitations:

·         Scarcity of options available to traders in comparison to its CEX counterparts.

·         Inability to trade cryptocurrencies that do not support smart contracts.

·         Lack of technical support service.

·         Relatively short supply of liquidity.

·         Fiat currencies are not supported.

7. Centralized vs. Decentralized Cryptocurrency Exchange

·         In contrast to centralized exchanges, DEX exchange crypto does not have a single management center in the figure of the owner.

·         The entire structure of DEX management is more democratic since it assumes the involvement of all participants of a particular platform in the decision-making process. That is why a DEX cryptocurrency exchange is defined as an open-source platform that does not have a single control.

·         Decentralized exchange crypto is managed automatically or in some hybrid semi-automatically form.

·         DEX is only providing a platform for peer-to-peer exchange without the aim of raising the personal profit of its owners. In contrast, the goal of increasing profitability is the top-rank guide for centralized cryptocurrencies exchanges.

·         Decentralized crypto exchanges are based on blockchain technology for processing and keeping data on all transactions. At the same time, their centralized counterparts use their own equipment for storing all data about trading. CEX follows this practice because it takes sole responsibility for safeguarding the personal data of its customers.

·         Decentralized crypto exchange is hard to reach for hackers because, in contrast to CEX, DEX does not have a single control and, therefore, a single entry point. Thus, user finances are more protected on a decentralized crypto exchange.

·         Registration on CEX assumes the strict process of verification, while DEX cryptocurrency exchange doesn’t demand from its users even email addresses.

·         If you keep your funds on a centralized crypto exchange and it suddenly ceases to exist, funds will be lost. In the case of a decentralized crypto exchange, its closure will not affect your finances.

8. Decentralized Exchange Evolution

As can be seen from the comparison of centralized vs. decentralized cryptocurrency exchange, both types of exchanges have their own strong and weak points. The choice depends on whether the user is an expert in the field of trading and is ready to take full responsibility for all operations. Both kinds of platforms have their support base. But by learning from each other's mistakes and taking advantage of each other's strengths, some synthesis will inevitably occur in the near future. As a result, a kind of hybrid version of both types is quite possible.

To become more popular among cryptocurrency owners, the best-decentralized crypto exchange must solve the following tasks:

·         Simplify the user interface

·         Expand the number of options available to traders

·         Accept fiat currencies and credit cards

9. Final Words

The rapid development and spread of the best-decentralized crypto exchange have become another important step towards the construction of the DeFi system. With many advantages, they still need to be improved. There is no doubt that cryptocurrency enthusiasts will take them to a new level in the near future. Does this mean that they will completely replace CEX? Hardly. After all, there are so many users who are willing to delegate control of their assets to another, more experienced person, such as a broker. But DEX cryptocurrency exchange will expand its user base and successfully compete with centralized crypto exchanges.

Frequently Asked Questions

What Are Decentralized Exchanges?

A decentralized crypto exchange is a platform created for trading cryptocurrencies. In contrast to centralized models of exchanges, it does not have a single control agent that manages all exchange operations. All information on user transactions is decentralized within a certain blockchain instead of keeping it on centralized crypto exchange servers.

How Many Decentralized Exchanges Are There?

The number of decentralized crypto exchanges is growing very fast. If at the beginning of 2021, the decentralized crypto exchange list included only about 35 of them, at the beginning of 2022, there are already more than 160 DEX in this list. You can buy, store, and exchange your crypto on any of them. However, to make the experience of trading crypto and encourage one, choose the best-decentralized crypto exchange.

What Is the Most Decentralized Cryptocurrency?

Any cryptocurrency using blockchain technology is decentralized.

At the same time, all kinds of crypto are decentralized according to some indicators and centralized according to others, combining these two qualities. The answer to this question depends on which indicator you accept as the main one.