DEXs (Decentralized Exchanges) are decentralized cryptocurrency exchanges that provide direct access to digital assets. DEXs provide peer-to-peer (P2P) token swaps using blockchain technology rather than depending on a corporation to fill and record cryptocurrency exchanges. DEXs specifically employ smart contracts for trade execution. Once a number of predetermined conditions are met, smart contracts automatically execute instructions.
On top of a blockchain, DEXs use a mix of smart contracts and liquidity pools. The smart contract code enables trade filling without the need for a third party to maintain order books. Any cryptocurrency investor might supply “pools” of DEXs with their tokens, enabling users to exchange these assets.
Benefits of DEXs
When using a DEX, there is no requirement to believe that a third party would carry out trades on the user’s behalf. Since every transaction is recorded on a public ledger, dealers have more assurance regarding their digital assets.
Access to Private Keys
Tokens are transferred straight into users’ cryptocurrency wallets when they transact on DEXs. Those who value self-custody won’t need to be concerned about their tokens being held by centralised exchanges.
Wider Altcoin Choices
On DEXs, crypto traders have an easier time discovering brand-new, diminutive, or obscure altcoins. Due to their strict regulations, CEXs often don’t take the same chances with unproven cryptocurrency ventures as DEXs.
Top 5 DEXs
Uniswap, which is based on Ethereum, is by far the biggest DEX in the cryptocurrency industry. According to recent estimates, Uniswap consistently processes more than $1 billion in daily transactions and holds around 50% of the total volume for all DEXs. Uniswap provides the best liquidity and security for DEX trading because to its size and repute.
The largest DEX on the Binance Smart Chain, PancakeSwap resembles Uniswap in design. However, PancakeSwap typically has lower fees than DEXs based on Ethereum because it is on the BSC. Many retail investors who don’t want to pay the higher rates for engaging with Ethereum have been drawn to the reduced fee structure.
QuickSwap is built on Polygon network. It is a next-generation layer-2 decentralized exchange and Automated Market Maker. It allows trade of any combination of ERC-20 tokens permission less, with ease.
On Ethereum, Curve DEX focuses on stablecoin pairs. Curve does not provide a large number of speculative altcoins, in contrast to several rival DEXs. Instead, it uses an algorithm that gives the least amount of slippage and lowest costs between supported digital assets priority.
Using all the alternative exchanges and liquidity protocols that can make this deal possible, 1inch’s algorithm determines the cheapest way to execute that trade. Customers may also get the best trading prices for tokens with the aid of 1inch Exchange.
Future of DEXs
Peer-to-peer rivals are gaining market share as a result of the fallout of FTX Trading and comparable solvency difficulties at other centralized crypto exchanges and loan platforms. Decentralized exchange (DEX) trading volume has already surpassed $91 billion in November, a 79% rise from the entire month of October.
Users always keep control of the private keys to their cryptocurrency wallets thanks to DEXs’ use of decentralized smart contracts inscribed on public blockchains, which eliminates the counterparty risk associated with centralized exchanges (CEXs). When using decentralized trading and other financial services, users never have to give up ownership of their assets.
DeFi is going to play an important role in the expansion of DEXs. By purchasing the tokens of prominent DEXs like UNI, CRV, and SUSHI or lending protocols like Compound (COMP), Maker (MKR), and Aave (AAVE), investors are seeking exposure to DeFi. Thus, the growing demand for DeFi application is anticipated to increase prospects of DEXs in the coming years.