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What is Decentralized Exchange (DEX)?

What is Decentralized Exchange (DEX)?

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Imagine a crypto exchange that you don’t have to deposit your fund. Imagine you don’t have to complete the KYC process. Imagine, you control your fund without the risk of an exchange getting hacked.

These are the offers a decentralized exchange (DEX) can offer!

What is DEX?

As the name suggested, DEX is a cryptocurrency exchange platform without a central authority to regulate it. DEX uses blockchain technology with smart contracts to complete the operation and execution.

What are the advantages of DEX?

Compared to a centralized exchange, these are advantages that attract users to use DEX.

Security

The security factor is always a priority when it comes to assets. By not using third-party as fund custodian, users have full access to their funds.

Other than that, a DEX is unlikely to get hacked. Without the central authority to govern the exchange, hackers can’t steal valuable details to access any funds or accounts.

Privacy

Remember taking a lot of selfies for your KYC verification? Or perhaps you are not comfortable sharing personal information?

DEX tackled the issues. There are some DEX that requires the users to sign up through email to use.

It also helps in a country where cryptocurrency is unwelcomed. 

However, there are downsides to it.

The disadvantages of DEX

While having all the advantages sounds easy peasy. It is not. DEX is for experienced users and not for the total beginners. 

Users’ Accountabilities

Users are responsible for every trades made. If there are any errors in keying address or amount, it is irreversible and untraceable. There’s no ‘forgot my password’ here if users got locked out from their wallets.

Liquidity

In certain DEX, users can experience liquidity issues. It can happen when the exchange doesn’t have enough users or assets to fulfill the orders.

See Also

Regulatory Bodies

Due to its nature, DEX is a platform to trade cryptocurrencies. For the countries that acknowledged it as an asset type, DEX would require to apply for consent or license to operate.

While this issue would happen to centralized exchanges as well, the privacy issue will be challenging when the regulatory bodies stepped in.

That would be the case for EtherDelta in 2018, where the founder of the exchange charged by the United States Securities and Exchanges Commission (SEC) for operating an unregistered exchange.

Which DEX is reliable?

There could be hundreds of DEX operating right now, that’s why it’s crucial to choose a reliable and trusted DEX.

You can check DEX exchanges by using market analysis services like CoinGecko.

These are the top 10 DEX by trading volume by the time of writing.

  1. Uniswap (V2)
  2. Curve Finance
  3. Aave
  4. 1inch
  5. Compound Finance
  6. Balancer
  7. Synthetix Exchange
  8. Kyber Network
  9. 0x Protocol
  10. dYdX

What do you think about DEX? Is it better than its centralized counterpart?

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