Definition
A decentralized exchange (DEX) is a cryptocurrency exchange which operates in a decentralized way, i.e., without a central authority. Decentralized exchanges allow peer-to-peer trading of cryptocurrencies.
Difference from centralized exchange
The DEX exchange has a p2p market on blockchain technology (mostly on ethereum), which gives traders the ability to independently store and manage funds. All information is stored on the blockchain, and transactions are made through.
The usual centralized exchange has a server, a lot of equipment located in a particular place, and a lot of software shells. All these elements are potential targets for a hacker attack.
At the DEX exchange operating on the blockchain, the only vulnerabilities are the structure of smart contracts and the server with the exchange’s website. Therefore, to intervene in its work is more difficult. The high level of security of decentralized cryptocurrency exchanges is their main advantage.
The advantages of trading on DEX
The main difference of centralized exchanges from decentralized is the form of ownership. As a rule, centralized exchanges such as Binance, OKEx or HitBTC are controlled by specific individuals, whose main task is to make money. And it is these people who make decisions regarding changes in policy or the choice of further development of the project.
In decentralized exchanges, decisions on the platform are made with the involvement of participants in the voting process.
Experts and traders point out the following advantages in trading with DEX:
- High security level.
- Transparency of all operations. All transactions are publicly tracked via the blockchain. A large number of idle transactions in favor of the site will not go unnoticed and will seriously affect its reputation.
- Anonymity of users, which is ensured only when exchanging one cryptocurrency for another. If a client wants to exchange fiat currencies, then almost all DEX exchanges will require verification.
- Account on the DEX exchange can not be blocked. Even the exchange itself cannot do this.
- Customer funds are not held on the exchange.
- Users control their personal accounts themselves by managing important functions on the blockchain.
But, due to the fact that trading on a decentralized exchange is not so popular, these exchanges have several drawbacks:
- lack of stop-scaffolding and other coaching tools;
- low trading volume;
- coins that do not use smart contracts are missing from the listing on DEX.
Also, DEX exchanges have lower bidding speed compared to centralized ones. For this reason, DEX is not suitable for those who practice ultra-fast automated trading. For other users, this drawback is not critical.
The most popular decentralized exchanges
Today, there are more than two hundred decentralized exchanges, but now it is difficult to compare this number with the number of their centralized ones, their amount can exceed several thousand.
Here are a few most popular DEX exchanges:
- IDEX — a decentralized exchange on Ethereum with real-time trading and the ability to trade directly from a hardware wallet;
- Waves Dex is a multiplatform decentralized exchange with the ability to exchange cryptocurrency for fiat money from the project Waves.
- Bancor Network — a decentralized exchange with an automatic pricing mechanism and, therefore, with no variation between the prices of buying and selling tokens;
- Switcheo Network is a decentralized multichain exchange based on the NEO blockchain with no commissions.
Summing up
Now, the popularity of decentralized exchanges for cryptocurrency trading is still very low, but compared to the situation a year ago, the situation has moved. It is not a secret for anybody that top exchanges are developing their own DEX platforms, and Binance is one of the leaders in development in this area. After launching DEX from Binance, it will be possible to count on an increase in trading volume on decentralized exchanges.
