How Decentralized are DEXs? A Classification System for Decentralized Exchanges.

Is Binance DEX decentralized?

Totle
Totle
Jun 18 · 5 min read

Is Binance DEX Decentralized?

To answer the question of whether Binance DEX can be considered decentralized or not, we’ve created a framework to classify how decentralized a given exchange is.

  • KYC requirements
  • Control of transactions
  • Censorship
  • Settlement
  • Order matching
  • Liquidity
  • Infrastructure
  • Development

The Classes

Centralized

These exchanges take custody of users’ funds, require users to provide information about their identity, have the ability to censor access, manage order matching, liquidity, and settlement using internal resources, and are built using centralized infrastructure.

Non-Custodial

These exchanges never take custody of users’ funds and have on-chain settlement. They do, however, require users to provide information about their identity.

Permissioned

A permissioned exchange does not take custody of users funds, does not require users to provide information about their identity, but does have the ability to reverse transactions and censor who has access to their services.

Permissionless

A permissionless exchange does not take custody of users’ funds, does not require users to provide information about their identity, cannot reverse transactions, but has limitations on which tokens can be traded and/or which users can access their services.

Off-Chain

These exchanges do not take custody of users’ funds, do not require users to provide information about their identity, cannot reverse transactions, and have not censored access to their services. Order matching and liquidity pools are managed off-chain.

On-Chain

These exchanges are what crypto developers consider true DEXs. They are non-custodial, permissionless, do not censor access, and settlement, order matching, and liquidity are managed on-chain.

Decentralized

In a fully decentralized DEX, development and infrastructure are decentralized too. MetaMask using Infura and development teams depending on a few key developers are factors that prevent any DEX from being considered fully decentralized.


*ShapeShift is Custodial

Although ShapeShift markets itself as non-custodial, there is a point where users funds are in their possession. During a swap, ShapeShift accepts users’ tokens as payment and then compensates the user with tokens from their internal reserve. This means users need to trust that ShapeShift will compensate them with funds after the funds are in ShapeShift’s possession.

**Binance DEX is a Permissioned DEX

Within our classification system, Binance DEX displays a level of decentralization equal to a permissioned DEX.


Totle’s DEX Evaluation Process

For Totle to consider adding a DEX into our network, they need to have atomicity. This means we need the ability to swap tokens atomically (the exchange of tokens without the involvement of a centralized intermediary) in a completely permissionless manner.

Building with DEXs is Easy

Totle manages decentralized liquidity so that developers can stay laser-focused on building powerful, decentralized products that can beat out centralized solutions.

Get Started

To start using Totle, access the API here: Build with Totle


Totle

Decentralized Liquidity on Autopilot.

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Totle

Decentralized Exchange Liquidity on Autopilot.

Totle

Totle

Decentralized Liquidity on Autopilot.