What is DEX

Uniswap and many other DEXs are built atop the Ethereum blockchain. Any tokens traded there must be on the Ethereum blockchain, too. That means no Bitcoin and a lot https://www.tokenexus.com/ of other popular tokens from competing blockchains. Users must instead convert their ETH to “Wrapped Ether” (WETH) which is equal in price to ETH so they can trade.

A decentralized exchange (DEX) is a cryptocurrency trading platform which allows traders to exchange crypto tokens using smart contracts — without a middleman or centralized authority. On the other hand, decentralized exchanges (DEXs) have emerged as an alternative to CEX platforms, offering peer-to-peer (P2P) trading and access to the emerging sector of decentralized finance (DeFi). Platforms like Uniswap, Kyber, and Bancor have become widely recognized as decentralized alternatives to centralized exchanges. In January 2019, DEX platforms represented just 0.11% of global trade volume, but that number has since swelled to 14% as of August 2023.

DEALS for Free BTC, High APY, and Trading Fee Discounts

For example, you could swap your Ethereum for XRP if you want. When looking to trade cryptocurrencies, one most often needs to use an exchange to do so. Centralized ones, where you are not in full control of your own crypto, or Decentralized ones also known as a DEX. Today, we’re taking a closer look into what a DEX is and what it brings to the table.

An exchange is required as a “site” in which to do this business. You may have new crypto that you want to offer up to the market, selling it to buyers (or bidders) in an exchange. Additionally, you may want to make a trade of one type of crypto for another, much like a foreign money exchange depot. Learn what makes decentralized finance (DeFi) apps work and how they compare to traditional financial products. DEX protocols can use Chainlink Price Feeds for reliable price conversions, accurate display prices on a frontend, or the secure calculation of staking rewards and fee distributions to stakeholders. On DEXs involving margin or futures contracts, Price Feeds can help ensure the correct pricing of collateral assets and the accurate processing of liquidations.

Pros & Cons of Trading on a Decentralized Exchange

On a DEX, trading is done using smart contracts, and every transaction is written to the blockchain. A DEX replaces the need for a centralized exchange to act as a middleman, although DEX projects do need developers supporting the automation. Ethereum is the most popular blockchain for tokens due to its unique programmable smart contracts. As a result of this popularity, the Ethereum-based DEX, Uniswap, has become favored by token traders. While CEXs provide easy trading, high liquidity, etc., their wallets are custodial, meaning that they hold authority over your crypto. Going by the famous phrase “not your keys, not your coin,” it is safe to say CEX wallets create a security risk for traders and investors.

What is DEX

The wonderful and often wild world of crypto exchanges can get somewhat confusing when it comes to vocabulary. It seems the industry has opted to make up an entire vernacular all of its own, borrowing some words and phrases from the traditional investment environment, and making up new ones for the space along the way. This does not mean that there is no difference between those DEXes and CEXes; rather, a DEX order book matches trades and does not force users to deposit funds to an in-house exchange wallet.

What is DEX Platforms?

What is now the largest DEX out there was created on the Ethereum blockchain in 2018. It was done by a former mechanical engineer, who had learned to code only after getting laid off by Siemens the previous year. Whatever your reasons, as each user will have a unique purpose, the “exchange” itself is simply the space in which the business is conducted.

  • As a result of this popularity, the Ethereum-based DEX, Uniswap, has become favored by token traders.
  • Smart contracts provide security in a peer-to-peer space by allowing the computations to be automated.
  • As a decentralized, liquid, and composable digital asset with ubiquitous network effects, MakerDAO is one of the most useful cryptocurrency protocols.
  • The now-standard CEX requirements — passport data, a phone number, email address and other forms of user verification — are irrelevant when it comes to DEXes.
  • But when you aim to trade crypto, you need to know the ins and outs of the products you are considering.

They include Ethereum, BNB Smart Chain, Avalanche, Cardano, Tezos, Fantom, Cronos, Solana, Tron, and Arbitrum, among others. Any blockchain that supports smart contracts can act as an infrastructure for decentralized trading venues. Liquidity providers (LPs) are market participants that fund liquidity pools with What is DEX the crypto assets they own to facilitate trading on DEXs. In return, they get a fraction of the transaction fees from the trades taking place on the DEX and liquidity provider (LP) tokens, which represent their share in the pool. Liquidity providers earn more when they deposit more crypto to the liquidity pool.

But you don’t really hold them, because you’re entrusting the exchange to act as a custodian on your behalf. Any trading you do, like swapping Bitcoin for Ethereum, aren’t occurring on a blockchain, but within the exchange’s database. Sophisticated DEXs give you lots of control over how you participate in a liquidity pool.

DEX does not require ‘KYC,’ the authentication procedure of the client’s identity. CEX demands KYC verification by submitting the real-name financial transaction system to secure transactional stability. The information is dispersed and stored in a blockchain, and once it is registered, it is hard to counterfeit. Rather than transactions with firms acting as intermediaries, P2P transactions have been brought into effective action gradually. In turn, it forecasts that there will be a massive transfer from the existing CEX(Centralized Exchange) to DEX(Decentralized Exchange).

EthereumPoW

Only some of the most popular tokens may be listed on centralized exchanges. If traders want to buy and sell lesser-known tokens, a DEX is the way to go. Finally, many people are drawn to DEXs because of the availability of unlisted tokens.

What is DEX