Navigating the DEX Maze: A Guide for New Users
What is a DEX? Decentralized exchanges, commonly referred to as DEXs, offer a trustless alternative to centralized trading platforms like Coinbase and Binance.
The main benefits of using a DEX are:
- No trusted central authority.
- No risk of losing funds due to to an exchange hack (ex. here and here).
- Most are open applications. This means that anyone can use them and there is no signup or KYC process.
The “DEX” label is loosely defined and has generally become an umbrella term used to refer to any non-centralized or non-custodial exchange. Let’s dive into a few of the different types.
DEXs by Category
The differences between DEXs gets fairly technical, quickly. If you’d like to understand them on a deeper level, we highly recommend checking out Ethhub’s resources on decentralized exchanges. They’ve done an excellent job explaining the nuances, pros, cons, and differences between different types of DEXs.
In the name of simplicity, we’ll primarily focus on the user experience related to each type of DEX. Because, that’s why you’re really reading this, right? 😃
0x Relayers
0x is “an open protocol that enables the peer-to-peer exchange of assets on the Ethereum blockchain”. On top of the 0x protocol, sit relayers who essentially act as an interface used to interact with the protocol.
You can visit the 0x portal to see current relayers. A few of the most popular relayers include: Radar Relay, Paradex, and Ethfinex Trustless.
Upon visiting, these 0x relayers probably look similar to other crypto exchanges you’ve seen before like Binance. You’ll see order books, depth charts, trade history, and more.
The main difference is the way you access them — through MetaMask, hardware wallets, or other wallet options — and what is going on behind the scenes when you place an order and it is filled.
Instead of depositing and withdrawing, 0x relayers facilitate wallet-to-wallet trading through a wallet you already control.
And, instead of database entries used to denote which orders you’ve placed and which assets you hold, your orders are transparently matched off-chain and settled on-chain using the 0x protocol — and your assets are held in a wallet you control.
Pool-based
Pool-based DEXs are becoming more popular due to their simplistic nature. Unlike 0x relayers, you do not have to place an order and wait for it to get filled or cross the spread to get filled.
Instead, you enter a desired input or output amount of a specific asset and the pool calculates a corresponding input or output amount based on available liquidity. (Ex. I want to sell 1 ETH for DAI. The DAI amount is automatically calculated to be 133.47 DAI. If you like this rate, you can proceed and execute the trade.)
Two popular pool-based DEXes include: Uniswap and Kyber Network.
If you are newer to the DEX space, this is a great place to start.
Important note: liquidity for pool-based DEXs varies widely, especially based on the desired pair. Make sure you do a sanity check on rates and check multiple exchanges to ensure you are okay with the rates provided. More on that in a bit.
Kyber, for example, offers the ability to revert a transaction (not do a trade) if the rate goes down by a specified percentage. This helps protect you against slippage.
Peer-to-Peer
A third type of DEX, peer-to-peer, matches users with one another. The most popular example of this is Airswap.
One benefit of Airswap, compared to 0x relayers and pool-based DEXs, is that you can chat directly with counterparties, negotiate prices, and sometimes find counterparties willing to trade higher amounts.
Comparing Rates
Beyond user experience, finding favorable exchange rates is an important factor when choosing which DEX to use. We’re still very early in terms of DEX development and available liquidity so rates vary widely across different exchanges.
DexIndex is a useful tool for searching Ethereum decentralized exchanges to find the best token prices and rates.
DEX.ag is another great resource for comparing rates. It allows you to find trades based on your desired pair, see current orders for that pair across many exchanges, and set your exchange preferences.
Parting Resources
If you have any DEX-related questions, Ahnboard is always here to help. Join our Discord server and start chatting away in #community-support.
Happy DEXing!
*Note: all stats and figures are as of 3/12/19. This space moves fast!*
DApp developer? Sign up to receive a periodic newsletter including resources, tooling, articles and infrastructure to assist you on your dApp building journey.
