DEX and its development prospects
What is DEX?
A Decentralized Exchange (DEX) is a crypto-asset trading application in which exchanges and other transactions take place using smart contracts rather than a centralized trading system.
DEXs are good in that they do not store user funds and do not control transactions in any way. Funds are transferred directly from the user’s wallet, which he connects to the platform. Also, decentralized exchanges have no user verification procedure.
Key advantages of DEX
- Very simple trading interface without stacks and different order types;
- Full anonymity of clients, because working with DEX does not require registration, opening a personal account or verification with personal info;
- DEX does not store user’s crypto-assets, so neither exchange developers, nor authorities can freeze funds on user accounts or put other restrictions;
- New assets are listed instantly on DEX when the corresponding liquidity pools are replenished;
- The possibility of passive income for users by contributing assets to the liquidity pools;
- DEX users can participate in its management through management token farming.
Risks and disadvantages of DEX
- In most modern DEX, crypto-assets can only be exchanged within a single blockchain. Sometimes cryptoassets from different networks are added to DEX via crosschain bridges, but this complicates the trading process;
- Decentralized exchanges have limited trading features, no familiar options such as different types of orders (e.g. Limit or Stop Loss) or leveraged trades. There are no additional tools such as a ribbon or order book;
- Any trades, including erroneous or fraud-related trades, are executed automatically via the blockchain and cannot be reversed or challenged at the help desk.
- The speed of exchange transactions in DEX depends on the speed of transaction confirmation in the blockchain and ranges from a few seconds to a few minutes. Therefore, high-frequency trading in decentralized exchanges is not possible;
- Decentralized exchanges tend to have less liquidity than centralized venues. Therefore, when buying or selling large positions in low-liquidity pairs, users may encounter so-called price slippage, which reduces the benefit to the user.
TOP 5 DEX
1. Uniswap is a decentralized open-source protocol based on Ethereum and a crypto-exchange of the same name.
2. dYdX is a decentralized crypto-exchange based on Ethereum blockchain.
3. PancakeSwap is a decentralized protocol and crypto-exchange of the same name on the blockchain of the largest crypto-exchange Binance — Binance Smart Chain (BSC).
4. ApolloX DEX is a hybrid crypto-exchange founded in 2021. According to the developers, the platform is something between CEX and DEX.
5. Kine Protocol is a crypto exchange focused on crypto derivatives, which has a native $KINE token.
DEX Perspectives
Decentralized exchanges with AMM technology have earned recognition from millions of users, attracted tens of billions of dollars in investments, and become an integral part of DeFi and the cryptocurrency market in general.
In addition, a number of centralized exchanges have launched their own DEX or implemented their individual features. In September 2020, the largest cryptocurrency exchange Binance launched Binance Liquid Swap service based on AMM technology. This service allows users not only to exchange several dozen cryptocurrencies, but also to place their assets in liquidity pools and receive a share of trading commissions.
In the future, we should expect decentralized exchanges to expand functionality for traders and improve interoperability for easy, cheap and fast exchange of assets in different blockchains.
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Tags: #DEX #Uniswap #dYdx #PancakeSwap #AppoloX #KineProtocol
