The Secret Behind Integrating DEX in Solidray Ecosystem.
In 2011 when Bitcoin was still new, the initial set of people who tried to purchase crypto using fiat faced many challenges buying Bitcoin.
From delay in processing time — sometimes it takes several weeks to process transactions from parties involved, sometimes the funds get missing.
And everyone questioned whether this is how cryptocurrency will replace the traditional financial system or at least compete with it.
In 2012, centralised companies such as Coinbase, QuadrigaCX and Bitstamp appeared on the scene. These companies made it significantly easier to purchase cryptocurrencies and seemed to work perfectly — until they didn’t.
In 2015, Bitstamp was hacked and lost about 19,000 BTC, worth $5.1 million at that time. In 2018, QuadrigaCX was hacked by its owner and CEO — customers lost about $190 million.
Not all centralised exchanges have had issues. Many currently operating have had years of successful business operations and many happy customers.
Centralised exchanges have their negatives, however. They are required to follow the country’s know-your-customer (KYC) rules. They have order book size limitations, and they need the user to trust the business’s stability, which is seen negatively by native crypto users.
A combination of these issues and the development of smart contracts eventually led to an elegant solution: an exchange platform built entirely on crypto in an entirely trustless and decentralised manner — a decentralised exchange.
There are primarily two types of exchanges in the crypto world: centralised exchange (CEX) and decentralised exchange (DEX).
A CEX is an online platform owned by an entity(third party) to help conduct transactions between buyers and sellers. These third parties have complete control over customers’ funds, while you only have to give permission to send or receive payments.
Examples of CEXs are Binance, FTX, Coinbase, etc. CEX wallets are known as custodial wallet
Although CEXs dominate cryptocurrency trading activity, DEXs are growing in popularity.
Today we will go deep into what is a DEX and why Solidray added it into its ecosystem.
A DEX is an online peer-to-peer platform where transactions occur directly between buyers and sellers.
A DEX is based on “disintermediation,” which implies removing middlemen to allow users to trade crypto directly with one another. A DEX doesn’t offer custody (non-custodial wallet) of users’ crypto assets. Instead, users directly hold all their assets in their wallets.
By late 2021, the major crypto DEXs had begun to compete with some of the largest CEXs in terms of the trading volume. DEXs trading volume surpassed $1 Trillion in 2021, with Uniswap taking the lead.
As exchanges are the most prominent crypto firms, DEXs are the largest decentralised organisations.
In the absence of a centralised authority, DEXs rely on self-executing smart contracts that keep track of every transaction and log it to the blockchain. As a higher level of security, from no central authorisation, crypto assets have become one of the fastest-growing investment choices in the world.
To be sure, not all DEXs are built the same way. Some platforms employ a traditional order book concept, while liquidity protocols are often used.
How Do DEXs Work?
There are multiple generations of DEXs.
Order Book
The first generation of DEXs used order books. These order books keep track of all open trades for a particular asset.
The difference between these prices dictates the depth of the order book and the current market price. This information is frequently held on-chain during transactions on DEXs with order books, while your assets stay off-chain in your wallet.
Exchanges that employ this method are DyDx and Binance DEX.
Swaps
Order books are no longer used to conduct trades or determine prices in this new generation of DEXs. New generation DEXs often use liquidity pool protocols to set asset prices and instantly execute transactions between users’ wallets — a process known as a swap. This category’s DEXs are rated by total value locked (TVL)
Exchanges that employ this method are Uniswap and Balancer.
DEX Aggregators
DEXs employ a variety of protocols and techniques. Although this dynamic leads to more security and autonomy, it also leads to disconnected liquidity across platforms. This lack of liquidity can deter institutional investors or wealthy independent traders who want to purchase a crypto asset in large volumes. DEX aggregators have built methods to expand asset liquidity pools across centralised and decentralised exchanges to solve this.
Exchanges that employ this method are 1inch exchange and Deversifi.
Benefits of DEXs
DEXs are continually developing and attracting an increasing number of users. Here are the main advantages of DEX platforms over CEX systems.
Transparency
Users of blockchain technology may keep track of all transactions and their statuses because all transactions are public.
Lower Transaction Cost
With the leverage of self-executing smart contracts, a DEX enables trading without intermediaries, minimising transaction fees.
Anonymous
DEXs do not demand a client’s personal information to perform transactions. As a result, it is far more convenient for people who wish to stay anonymous.
Unlimited Number of Tokens
Tokens can be purchased indefinitely. The number of tokens and coins available on CEX is strictly limited. Meanwhile, DEXs have no restrictions and may incorporate any token that appears on the blockchain.
No Middlemen
DEXs are built on smart contracts, so there are no middlemen in the transaction process. As a result, counterparty risks are reduced, and direct exchange participants retain total control over each transaction.
Asset Security Level
DEX is non-custodial. Therefore users don’t have to hand over their private key to make a transaction with DEX. Instead, smart contracts allow users to deploy personal external wallets interact with the DEX, and trade automatically.
Why Solidray is integrating DEX into its ecosystem.
Although CEXs account for the bulk of market activity because they provide security and regulatory control and are frequently insured, the rise of DeFi(Decentralized Finance) has made room for developing DEX protocols and aggregation tools.
Solidray DEX will display the potential for simple, user-friendly platforms that rely on liquidity protocols rather than order books.
As the DEX market matures, the proliferation of new protocols and supporting mechanisms will likely only accelerate.
Customers on Solidray DEX will benefit from partaking in different products in the Solidray Ecosystem — more like unifying other Web 3.0 applications on a single platform.
Imagine chatting with family and friends (Solidsocial) and trading crypto simultaneously, on a single platform, and secured.
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