What is Decentralised Exchange?
Over the years the crypto environs have been largely dominated by the prevailing notion of the centralized structure of exchange such as Binance or Coinbase due to their accessibility and ease yet the inherent risk of custody, security, and more led to the necessity for much-improvised exchange mechanism that is when the concept of a decentralized exchange, fondly called DEXs gain the limelight in the crypto ecosystem. It is a decentralized exchange mechanism in a crypto ecosystem that allows peer–to–peer cryptocurrency trading. In this exchange market, there is no reliance on third-party services for holding customer’s funds instead the trade occurs directly, without any intermediaries an automatic stipulated manner. Thus, the system is in contrast to the centralized model of trading. DEX concept is executed by creating tokens (crypto assets), attached with certain monetary value to them or through a decentralized multi-signature escrow system, etc. DEXs are one of the most vital sectors in the Defi ecosystem too with some widespread exchange platforms such as Uniswap, dYdX, Kyber Swap, 1inch, Open Sea, and more.
Characteristics of DEXs
Some of the most notable aspects of DEXs include:
- DEXs are non-custodial thus the ownership of the user is never repealed.
- It is a highly automated and prompt process as there is no involvement of intermediaries which ensures the quick and smooth flow of transactions backed by liquidity.
- The concept comes with cost efficiency as it holds minimal trading fees for swapping crypto assets.
- The significant features of DEXs have added universal accessibility to it as it requires lesser formalities. Thus, the process becomes simplest to grab and accept.
- The ease of operation in this exchange mode is Pseudo-anonymous as the users can simply connect to the wallet of their choice without much scrutiny onto their background or profile.
The characteristics of the DEXs induce remarkable advantages to the feather of the crypto chain. The apparent notion of trust, security, and transparency are the pros that came in role with the DEXs invasion. Accordingly, this model of exchange also ensures privacy to the individuals as no third party interference is inexistent. The ultimate hosting of DEXs is segmented in nodes that distribute them over the network which in turn reduces the risk of severe downtime. Inarguably every coin has two sides so does this; the loopholes associated with the concept are the points of consideration, absence of the margin trading, stop loss, and lending norms backed by the predetermined value of the currency which reduces flexibility. The lack of the KYC process might lead to the theft of passwords or private keys.
Key Points to Consider
With the wide range of available DEXs in the market, one needs to be cautious while choosing any of them based on certain criteria which can make the decentralized exchange world the healthier one.
- The slippage associated with the trading pair should be majorly taken into consideration as the rule goes by, more unclear the pair more the slippage associated with the trading pair will be. Almost every DEX displays the expected slippage under their “Advanced” options.
- It becomes necessary to have a worthwhile 3D volume scrutiny of the DEXs as the ones with most volumes in the continuous period of 30 days are believed to be most reputable.
- The degree of custody of DEXs is to be taken into consideration as it varies depending on the required assets and other smart contracts for the trading to be active. Thus, DEX with the least requirement of assets is the best to go by.
- The audit history is the must be given regard as almost every DEX undergoes strict audit before their full It is always better to choose the well-audited platform of exchange for trading
- The Beta mode is the signal of an inchoate form of DEX which is the least recommended especially for the new users.
- The projects and platforms with the most social presence and community backing tend to be more active.
DEXs in 2020
The year 2020 has so far framed itself as the expansion year for Decentralised Exchanges (DEXs) shaping them as the core exchange mode owing to their significant benefits. With the emerging usability, liquidity, and composability, the DEX environs are growing by leap and bounds. August 2020 came to be the crucial month for DEXs to date as it witnessed the significant growth for Uniswap, dYdX, Balance, and Curve and have taken the mainstream role in occupying the market share in this sector. Additionally, Balancer has made certain suites for adjustments in its Liquidity Mining Program which in turn will provide the users with a better margin on BAL government tokens. Curve introduced its new CRV governance token whereas Banco V2 is spreading its wings by letting LINK, LEND, REN, renBTC, SNX, etc. come into the picture in the nearby future.
Rolling in as a game-changer the concept of DEX has brought in certain considerable advantageous factors and features it the ecosystem yet even at present there is a gap that needs to be eliminated to ensure full-fledged domination of this vibrant concept in the global scenario and to give a better boost to the blockchain and crypto world. Thus, the appropriate amount of alteration, awareness, and acceptance is mandated to make this a big influencer in the digital ecosystem.