In order to trade cryptocurrencies, every user requires a cryptocurrency exchange. Decentralized exchanges, abbreviated as DEX, are cryptocurrency exchanges that are fully decentralized, where transactions happen peer-to-peer without a middleman or intermediary broker. DEXes often utilize AMM (automated market makers) and do not require KYC.
To put it simply, decentralized exchanges (DEXs) enable users to buy and sell cryptocurrencies with one another without the need for brokers. Users merely need to connect their crypto wallet to a DEX, such as Uniswap or Pnackaswap, choose the crypto-crypto pair such as between Ethereum and USDT, enter the amount and click on swap. These Decentralized crypto exchanges work on smart contracts, which are agreements and protocols coded within the blockchain system. These exchanges do not rely on any third party, The funds in the exchange are stored on the blockchain. Peer-to-peer trading (P2P) is also allowed by these exchanges that require the use of an escrow system or proxy tokens. This is different from the IOU system used by centralized cryptocurrency exchanges.
Let us understand what is Decentralized crypto exchange and the top Decentralized exchanges (DEX) that you must know.
Decentralized exchanges are one of the key building blocks of the decentralized finance (DeFi) ecosystem. A DEX is a platform where users can trade cryptocurrency directly with each other, without using a middleman. A traditional centralized exchange like Binance, for example, acts as a custodian on your behalf, with any trading taking place on Binance’s database, rather than directly on the blockchain itself. Wondering how is decentralized exchange different from centralized exchanges? We have got you covered. Read a detailed analysis of the differences between centralized and decentralized crypto exchanges.
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dYdX is the developer of a leading non-custodial decentralized exchange that operates with a mission and vision to develop secure, open as well as powerful financial products. It runs on audited smart contracts on Ethereum, which eliminates the need to trust a central exchange while trading. The exchange combines the security and transparency of a decentralized exchange, with the speed and usability of a centralized exchange.
According to CoinMarketCap, dYdX provides the Traders can go long or short with 25x leverage on BTC-USD, ETH-USD, LINK-USD, UNI-USD, AAVE-USD with many markets coming soon.
To significantly scale trading, dYdX and StarkWare have built a Layer 2 protocol for cross-margined Perpetuals, based on StarkWare’s StarkEx scalability engine and dYdX’s Perpetual smart contracts. Traders can now trade with zero gas costs, lower trading fees, and reduced minimum trade sizes
Uniswap v3 is the most powerful version of the protocol yet for the Uniswap decentralized exchange. Uniswap is a popular decentralized trading protocol, known for its role in facilitating automated trading of decentralized finance (DeFi) tokens.
Uniswap creates more efficiency by solving liquidity issues with automated solutions, avoiding the problems which plagued the first decentralized exchanges.
Uniswap aims to keep token trading automated and completely open to anyone who holds tokens, while itself working on improving the efficiency of trading versus that on traditional exchanges.
Uniswap is not just a decentralized exchange; it attempts to solve the issues that platforms such as EtherDelta experienced with liquidity. According to Uniswap, their governance token (UNI) was created in order to “officially enshrin[e] Uniswap as publicly-owned and self-sustainable infrastructure while continuing to carefully protect its indestructible and autonomous qualities.”
Automation of the market-making process, the protocol incentives activity by limiting risk and reducing costs for all parties. The mechanism also removes identity requirements for users, and technically anyone can create a liquidity pool for any pair of tokens.
Also Read: UniSwap Fundamental Analysis
PancakeSwap is a decentralized exchange for swapping BEP20 tokens on Binance Smart Chain. PancakeSwap uses an automated market maker (AMM) model where users trade against a liquidity pool. Such pools are filled with users’ funds. They deposit them into the pool, receiving liquidity provider (or LP) tokens in return.
The LP tokens are called FLIP tokens. They can use those tokens to reclaim their share, plus a portion of the trading fees. PancakeSwap also allows users to farm additional tokens – CAKE and SYRUP. On the farm, users can deposit LP tokens, locking them up in a process that rewards users with CAKE. Users can stake CAKE tokens to receive SYRUP, which will have further functionality as governance tokens.
SushiSwap (SUSHI) is an example of an automated market maker (AMM). An increasingly popular tool among cryptocurrency users, AMMs are decentralized exchanges that use smart contracts to create markets for any given pair of tokens.
SushiSwap aims 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. SushiSwap launched in September 2020 as a fork of Uniswap, the AMM which has become synonymous with the decentralized finance (DeFi) movement and associated trading boom in DeFi tokens.
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.
AMMs do away with order books entirely while avoiding problems such as liquidity issues, which hamper traditional decentralized exchanges. SushiSwap primarily exists as an AMM, through which automated trading liquidity is set up between any two cryptocurrency assets. The platform takes a 0.3% cut from transactions occurring in its liquidity pools, while its SUSHI token is used to reward users portions of those fees. SUSHI also entitles users to governance rights.
Uniswap is a popular decentralized trading protocol, known for its role in facilitating automated trading of decentralized finance (DeFi) tokens. The second version of this decentralized exchange is Uniswap (V2). Uniswap is a protocol for automated token exchange on Ethereum. It was launched on November 2, 2018. Uniswap describes itself as a simple smart contract interface for swapping ERC20 tokens. It has a formalized model for pooling liquidity reserves. It serves as an open-source frontend interface for traders and liquidity providers and is committed to providing free and decentralized asset exchange.
Decentralized exchanges are a very nascent technology. Some of the top crypto exchanges around the globe are centralized exchanges. However, decentralized exchanges have started to gain attention given the perks they have. The various advantages of decentralized exchanges have gained the attention of a lot of institutional traders and investors and therefore, we can definitely look out for these top decentralized exchanges as they go about to create a revolution.
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