Swap Tracker
June Katz 23 Aug 2023 ◦ 4 min read

What Is DEX?

What Is DEX?

The world of cryptocurrency mainly operates on centralized exchanges, which manage accounts and funds of their users functioning as intermediary institutions. Many people are not willing to share their personal information and rely on exchanges’ security systems. That’s when DEXes join the game. Let’s dig a little deeper to understand what it is and how it works.

Decentralized exchange explained

Currently, all major popular cryptocurrency exchanges, Coinbase, for example, are based on a centralized system. This means that they collect and store information about their users, and you should rely on their security system in order to keep your personal data and assets safe. To get away from this centralized institution, DEX was created. DEX is an innovative type of exchange platform that allows people to make transactions without any mediators. They can place orders and find each other, controlling everything on their own. To understand DEXs better, we will look into two concepts: custody and centralization. The custodial system means that if you buy cryptocurrency, it only appears in your account, but to own it you need to transfer it to your external wallet, which may result to be a difficult task if there are problems with the exchange. If you use a non-custodial system, all your assets go to your wallet and you can trade directly from it. And yet you may lose your assets if there are issues with the contract. As for centralization, it has to deal with the place where all the major stages of transactions happen, starting with order matching and ending with execution. Centralized exchanges have a special order book that logs all the orders and matches users. The transaction itself is held by the exchange software and servers. Decentralized exchanges work on a network of computers, they can either operate directly using smart contracts, or they can use relayers (second-layer networks). Now let’s consider the advantages and disadvantages of DEXs.

Benefits of decentralized exchanges

One of the main advantages of decentralized cryptocurrency exchange is anonymity. To join a decentralized exchange, you only need to use your public address, while centralized exchanges require a huge amount of data from their users. Another advantage is control: one can control their funds on their own and be responsible for their security. Moreover, due to decentralization DEXes are more difficult to hack. This leads to another benefit – less probability of a DEX having serious technical issues. Some nodes may go down, but the whole system will keep functioning.

Any drawbacks?

Since DEXes operate on a whole network of computers, it’s much more complicated to develop and implement. Entering a centralized exchange is quite an easy thing to do, while creating a DEX account involves connecting to a decentralized app (DApp) or in some cases installing a DEX client. Besides, in comparison with centralized exchanges, a DEX offers a simpler range of trading tools, which usually include only buying and selling. Moreover, the liquidity of such exchanges is really low, as only one percent of trading volume occurs on DEXes. Processing speed and fairness of trade are also important issues to mention. For now, even the best decentralized exchange takes a long time to process or cancel transactions, which results in price slipping. Apart from that, DEXes unintentionally make room for front-running, so you can’t be sure that no-one jumped ahead of you to buy coins. The main paradox of DEXes is the fact that some exchanges still hold custody of their users’ coins, some use order books or centralized networks of relayers. In this case are they really DEX and what’s their point?

Major DEXes

While the biggest part of trade volume is represented by centralized systems, there are still a few DEXes. IDEX and EtherDelta, for example, claim to be in the list of the most established DEXes. Both systems operate on Ethereum tokens. Binance DEX works with a great variety of coins, as well as 0x. There’s also Bancor Network that provides an automatic price determination and recalculation. Each DEX confronts its own issues that are yet to be solved. There’s a lot of controversy about the creation of a decentralized crypto exchange. Some people suppose it’s the only way to make trade fair and safe, while others believe that the only solution is to create a single centralized entity to govern all the transactions. There’s also a suggestion of creating a hybrid of centralized and decentralized exchanges combining their benefits. For now, it is unclear who’s right and who’s wrong but we’ll see what happens.

Related Posts

Best Crypto Investing Strategies in a Bull Market

Best Crypto Investing Strategies in a Bull Market

27 Mar 2024 ◦ 13 min read
The ever-growing bull market has been called investor heaven for a reason. During periods of stable growth in quotations, almost any, even the most aggressive portfolio with the maximum level of risk laid down, does not cause concern to the holder, and the income figures regularly
Top 2024 DeFi Trends: Navigating the Future of Decentralized Finance

Top 2024 DeFi Trends: Navigating the Future of Decentralized Finance

25 Mar 2024 ◦ 11 min read
Decentralized finance (DeFi) has been a new paradigm in the crypto world for a few years. By 2024, the DeFi ecosystem will continue to develop rapidly. In this article, we will look at what DeFi is, how it works, and most importantly, what the future trends of DeFi are.
Ways to Earn Free Crypto in 2024

Ways to Earn Free Crypto in 2024

15 Mar 2024 ◦ 8 min read
Cryptocurrencies have seen tremendous growth and adoption over the past decade, with Bitcoin standing out as a leading player in this digital revolution. However, amidst the challenges of price volatility and media speculation, some individuals may hesitate to invest in these digi
Common Mistakes in a Crypto Bull Market and How to Avoid Them

Common Mistakes in a Crypto Bull Market and How to Avoid Them

13 Mar 2024 ◦ 8 min read
The cryptocurrency market is on the rise, prompting many individuals to seize the opportunity and get involved in the fast-moving trend. However, not everyone is aware of how to navigate this trend effectively and the potential consequences of hasty actions. In this article, we wi

Where all instant exchangers met for your smoothest experience

Maximize profits, minimize search

Recent Posts

Best Crypto Investing Strategies in a Bull Market
Top 2024 DeFi Trends: Navigating the Future of Decentralized Finance
Ways to Earn Free Crypto in 2024
Common Mistakes in a Crypto Bull Market and How to Avoid Them

BTC  to ETH : Best Rates

btc-icon
btc
0.1