The world of DeFi has been growing at an exponential rate, despite the raging bear market right now. New utilities are being developed at a breakneck pace, trying to solve real world financial problems, the blockchain way. This would bring about greater adoption amongst the masses and increase the penetration of crypto as a tool across the world. Even as of now, it is something that is known by a few and used by even fewer. Hence, when DeFi begins to solve more and more real world issues, then we will see greater levels of adoption.
Now, as this world grows, one of the most important features required in any open market is the ability to trade and transfer value between two people. There are three ways it can be achieved.
- Centralised Exchanges
- Decentralised Exchanges
In this article we will understand what are decentralised exchanges and swaps are and look at some of the most popular options out there.
SO WHAT ARE SWAPS?
A swap, as the name suggests, is essentially a feature that facilitates the ‘swapping’ of one crypto for another. Unlike any exchange, there isn’t any marketplace in this scenario, but rather a two participants who want to exchange cryptos. This feature facilitates the instant exchange of two cryptos from unique blockchains without the need of crypto-to-fiat exchange or orderbook methods.
It essentially allows users to swap tokens directly from the official private key wallet or the trading account of the other person. Swaps have various benefits over a DEX of a CEX and some of the most important ones include non-custodial trading, on-chain exchange, faster transaction times and nearly zero network fees. So simply speaking, a DEX is a peer-to-peer crypto marketplace, whereas a swap is the exchange of one crypto for another directly between the two people.
SO WHAT IS A DECENTRALISED EXCHANGE?
A decentralised exchange is nothing but a smart contract that performs the function of a crypto exchange in a completely trustlessa and decentralised manner without the need for custodial or market making services. It uses various techniques like automated market makers and other variations of that to achieve this function in a decentralised manner.
Since most decentralised exchanges typically offer swap services, we will be looking at both of these in a collective manner.
Now, let’s look at some of the top decentralized exchanges (2022) by total-value-locked (TVL).
|Top DEXs||NATIVE TOKEN||MARKET CAP||TVL|
|CurveDAO||CRV||$470 million||$5.9 billion|
|Uniswap||UNI||$5.3 billion||$4.2 billion|
|PancakeSwap||CAKE||$662 million||$3.2 billion|
|SushiSwap||SUSHI||$192 million||$559 million|
|Dodo||DODO||$14 million||$96 million|
CURVE DAO (CRV)
Curve, similar to SushiSwap, is another popular automated market maker (AMM) platform that offers a very efficient way to exchange tokens while maintaining low fees and slippages by accommodating liquidity pools made up of similarly performing assets. It is managed by a DAO, and it has a token called CRV that becomes the backbone of the platform and it incentivizes participation by integrating with external DeFi protocols and delivering rewards.
Curve DAO was founded and launched back in 2020 by a Russian scientist, Michael Egorov. Egorov has experience with blockchain and crypto companies, since he had co-founded NuCypher and served as its CTO. NuCypher was a company that is focused on building privacy-oriented protocols and infrastructure.
While Uniswap is widely known and popular for its decentralized exchange, it does provide the swap feature for those users who want to use that method. Uniswap is a popular decentralized exchange that offers peer-to-peer trading of digital assets, using smart contracts to function as an Automated Market Maker. This platform is truly permissionless, which means that there are no intermediaries that are involved while carrying out the transactions. The platform operates on the Ethereum blockchain, which has recently transited from Proof-of-work to a Proof-of-Stake consensus mechanism.
Uniswap platform runs with the help of its native token, UNI which is also an ERC-20 token. UNI is used to rewards for users on the platform and the UNI holders are entitled to take part in the governance of the protocol. UNI is among the top DeFi tokens by market capitalization.
Read more: Uniswap Price Prediction
PancakeSwap is another decentralised exchange and a swap protocol for swapping BEP-20 tokens on the Binance Smart Chain. On the DEX front, similar to Uniswap – PancakeSwap also uses an Automated Market Maker (AMM) model where users are enabled to trade against a liquidity pool. The process it happens is that these pools are filled with user’s funds and they receive liquidity provider (LP) tokens in return for the funds deposited by them.
This platform works with a bunch of different tokens, all the way from FLIP, to CAKE and SYRUP – to farm, users can deposit LP tokens, locking them up in a process that rewards users with CAKE. Then users can stake CAKE to receive SYRUP which will further have a functionality as governance tokens.
Read more: Uniswap vs Pancakeswap
SushiSwap is another example of an automated market maker (AMM). It is essentially a method used by decentralised exchanges – and it also enables swapping of cryptos between users on the platform too. Users can simply connect their wallets, have some ETH in it to pay for gas fees, select the token you want to swap and execute! It’s as easy as that.
SushiSwap has the objective to diversify the AMM market and also add additional features not previously present on Uniswap, such as increased rewards for network participants via its in-house token, SUSHI. It was initially launched back in September 2020 as a fork of Uniswap. The main audience of Sushiswap is DeFi traders and the associated entities who are looking for opportunities to capitalize on the boom of the project. This in turn helps them create liquidity.
Read more: Sushiswap Technical Analysis
Dodo is one of the more unique cryptos on this list. While it is similar to other decentralised exchanges and swaps built on Ethereum and Binance Smart Chain, it differs in the fact that it does not use a usual automated market maker (AMM) algorithm but rather its own proactive market maker algorithm. According to DODO, its PMM model serves better price stability and liquidity for users than AMM DEXs.
One of the most unique features of this platform is SmartTrade – which facilitates trades between tokens on the same network by providing traders with the best prices by intelligently finding the best order routing from aggregated liquidity sources. It also has a credit feature called Flash Swap which enables users to pay on credit. Users can receive credit in a trustless manner on the DeFi platform and pay for it later too.
Read more: Top Companies using Blockchain Technology
So this is a list that consists of various crypto projects that are trying to solve a common problem in a way they think will be accepted by their communities. By enabling users to effectively swap tokens in a decentralised manner, it is improving the prospects of growing mass adoption within the Web3 and DeFi space and establish a new form of internet and currency in the world.