Decentralized Finance Exchange, poised to run the future of the crypto industry
A secure, tamper-proof, and intermediary-free environment for trading digital assets is provided by a DeFi Decentralized exchange. It is a viable substitute to centralized platforms having security issues due to repeated incidents of hacking attacks tarnishing its credibility.
Decentralized trading platforms provide pseudonymous processing of transactions, interoperability, maintenance of a high level of transparency, and complete control of assets by the users. They give high priority to the privacy and security of users. They offer token swapping facilities, use an order book or a liquidity aggregator for trading.
The DeFi hype has benefited Decentralized exchanges a lot as Uniswap’s trading volume last year was higher than Coinbase. While Centralized platforms continue to pocket a bulk of the trading volume and liquidity in the market, Decentralized platforms are growing fast with greater user adoption. Since it uses peer to peer networks, it has hugely disruptive potential in the industry.
It could shape the future of the Crypto world as users seek greater control over their digital assets. More work is needed to increase its functionalities, scalability, and liquidity.
According to Ibrahim Alkurd, the CEO of New Mine, a blockchain mining company,
Decentralized exchanges are still in the early stages of development and more efforts are needed to enhance the user experience and technical support to overtake the trading volume of Centralized exchanges in the future.
What is the meaning of DeFi?
It refers to secure and scalable financial applications built on top of existing blockchain networks like Ethereum and TRON. They can be accessed by users located in any part of the globe. Smart contracts automate all the business operations and ensure a high level of efficiency.
The key differences between Centralized and Decentralized Exchanges
- Users of centralized platforms have to deposit their funds with an authority. On the other hand, users in a decentralized exchange retain full custody of their funds.
- The risk of a single point of failure is higher in Centralized exchanges making them highly prone to hacking attacks. Decentralized exchanges are managed by globally distributed nodes. Hence, the risks of a data breach or swindling of funds are low.
- Decentralized platforms offer more privacy as they do not have a formal registration process and the users are not subject to any KYC verification mechanism.
- Decentralized exchanges do not possess sufficient liquidity and cannot handle large trading volumes efficiently.
- Centralized platforms use full-fledged order books to match the trade requests raised by users. A Decentralized Finance exchange uses relayers that work on second-layer networks or smart contracts for order processing.
- There are more chances of price manipulation and market risks in a Centralized exchange when compared to a Decentralized platform.
- A Decentralized exchange may not have features like margin trading and the acceptance of take-profit and stop-loss orders. This leads to a lack of choice for users.
- Most of the Decentralized platforms do not accept payments in fiat currencies affecting local traders who do not have any crypto holdings.
How does a DeFi Exchange Platform function?
- The buyer of a cryptocurrency will raise an order for exchanging his assets on the platform.
- He has to mention information about the accepted payment methods, the cost, and the time till which he permits bidding for the trading deal.
- Sellers will submit their bids.
- All the bids will be automatically reviewed by the smart contract and the best deal will be selected to benefit both the buyer and the seller.
- The transfer of the crypto assets is done once both the buyer and seller agree to execute the trade.
- The crypto assets are sent to the buyer’s digital wallet.
- The trading deal gets concluded successfully.
The Extensive benefits offered by a DeFi Decentralized Exchange Platform
- It provides atomic swapping where assets can be directly exchanged by a user with others in the absence of third parties. It can also be done between different blockchain platforms.
- Custom tokens can be added to the trading platform through APIs and plugins. This provides a lot of flexibility and hedging against market risks.
- Trading can be done continuously on the Decentralized exchange without waiting for transactions to mine.
- Multiple buy and sell orders can be raised simultaneously. An order cancellation option is also available without paying any gas costs.
- There is no chance of a shutdown as the Decentralized exchange platform is completely immune to government regulations and authority control.
- Anonymous transactions can be executed by the users giving them a lot of privacy.
- It is very easy to use, and trading can be done with just a few clicks on the platform without the need to possess any technical knowledge.
- The open-source Smart contracts help in eliminating most of the vulnerabilities and technical risks.
- Liquidity is enhanced by using the Automated market maker (AMM) model. Passive liquidity is provided to assets and yields are increased through market-making.
- Counterparty risk is low as the guarantee of ownership of assets is present.
What are the different Mainstream DeFi Exchange Platforms?
The leading Decentralized exchanges are Bancor, Kyber, EtherDelta, AirSwap, Bisq, IDEX, Changelly, and WavesDEX. They do not seek any personal information from users, have a friendly interface, facilitate peer to peer trading, offer a secure multi-currency wallet, ensures transparent pricing, responsive customer support is available round the clock, and users have private keys to safeguard their funds from unauthorized access.
Compelling reasons to Develop your own DeFi Exchange Platform with Blockchain App Factory
At Blockchain App Factory, we offer a feature-packed Decentralized exchange where users earn high returns on their assets. The process followed is collecting the business requirements, preparing the technical outline of the solution, adding the needed features and functionalities, extensively testing the exchange to eliminate all the technical bugs, deploying it on the blockchain network, and issuing necessary software upgrades based on the operational feedback.
We are well-skilled in developing a Decentralized exchange on platforms like TRON and Binance Smart Chain. The proof of stake authority consensus mechanism is used to facilitate better smooth cross-chain operability, better liquidity, and improved market access. Integration is provided with various DApps for streamlining of operations.