Decentralized exchanges (DEX) in Crypto trading are becoming more and more popular. Like every element in trading, DEX has its own advantages and disadvantages. We will explore DEX and compare them with traditional centralized trading platforms. Let Learn Crypto Trading introduce you to DEX exchange!
Crypto DeFi Trading Overview
Blockchain technology in Crypto trading allows trading of valuable assets on a peer-to-peer basis. The exchange does not require the intervention of any centralized organization. However, users still often prefer to use centralized platforms.
What is DeFi?
Traditional financial institutions typically control a single centralized resource. The concept of DeFi is also known as “decentralized finance”. This is an umbrella term for operational financial applications, products, and services. It does not require the participation of intermediaries. For example, banks, credit institutions, or insurance companies.
In the past, intermediaries played a role in facilitating transactions and ensuring financial security. But for various reasons, the traditional financial system has gradually lost trust.
In contrast, DeFi systems eliminate the need for third-party intermediary structures. They use automation and operate on the Blockchain chain. Through smart contracts, agreements can be established and enforced automatically. This results in lower transfer fees and reduced transaction and investment costs. At the same time, access to capital is optimized for all participants.
DeFi is closely linked to cryptocurrencies. As the entire cryptocurrency ecosystem relies on decentralized payments to function. The growing interest in this sector has led to an increase in the number of coins and tokens being traded. It started with BitCoin over a decade ago.
For users to easily access native Tokens, projects must pay the required fee. However, not all projects can meet such high input costs. This has led to growing demand for decentralized exchanges.
See more: DEX – What is a decentralized exchange?
DEX exchange What is it?
DEX exchange or DEX screener are platforms that allow cryptocurrency trading. What they have in common is that they do not require third-party intervention. Instead of relying on an intermediary, DEX exchange allows traders to interact directly with each other. Although the functionality of DEX exchange is similar to traditional centralized exchanges. However, DEX exchange provides a peer-to-peer trading mechanism through the use of smart contracts. The purpose is to perform automatic transactions.
This type of transaction allows all participating parties to retain control of their digital assets and private keys. They do not need to entrust it to intermediaries or custodians. In other words, DEX exchange is a platform where users can manually search for counter orders for buy and sell orders. While they do not need to spend money for a central agency to store and exchange assets.
Identifying the pioneering platform in this field becomes difficult, as each information source gives a different name. Currently, there are many decentralized exchanges with diverse functions online. On GitHub alone, there are over 250 active DEX exchanges at this time. Typical examples include Uniswap, Tokenlon, 0x Protocol, Venus, Sushiswap, Compound, Curve Finance, 1inch Exchange and PancakeSwap.
However, reality shows that many online exchanges claim to be decentralized. But it’s not completely decentralized. They still use their servers to store transaction data. Although there is no access to the user’s private key.
How Does DEX Exchange Work?
The way DEX works has many similarities but there are also differences. Although several types of DEX are open to users. What they have in common is that transactions are performed on-chain. Some DEXs support cross-chain Token trading (e.g. AnySwap). But often DEX will focus on a single chain (e.g. Ethereum or Binance Chain). There are three basic types of DEXs: DEXs have an on-chain order book. DEXs have off-chain order books and DEXs have automated market makers.
In Crypto DEX Transaction Chain
The order book in the DEX chain ensures that each order and each transaction is recorded on the Blockchain chain. However, this requires the participation of many network nodes. This leads to the execution of transactions that cannot take place instantaneously in real-time. This seems unrealistic.
Beyond Chain DEX investing
In terms of off-chain order books, DEX exchanges are not completely decentralized. Because transactions are recorded outside the Blockchain chain, third-party intervention may be required. These are also called hybrid exchanges by experts. Because they have the typical functions of both types of exchanges.
DEX exchange investing With CEX
Both decentralized and centralized trading systems serve a common purpose: Providing people in need of high-quality financial services and tools with an access channel via the Internet. The main difference between them lies in the way they are organized and managed.
Centralized exchanges are run by a specific organization or individual. They are responsible for protecting users’ personal data and assets. They have absolute control and make their own decisions about how they operate and how they develop.
Decentralized systems are often automated in management. And members often have an active role in the decision-making process. They provide technology to create direct interaction between participants. At the same time, support or oppose important proposals. Currently, the centralized model still holds the upper hand. As mentioned above, the number of decentralized exchanges exceeds 250.
At the end of 2020, only about 19% of all trading platforms were decentralized. While the amount of transactions on these exchanges only accounts for about 1%. Although the DEX is still in the early stages of development. But they certainly represent an innovative idea, meeting growing demand. Learn more about the concept of What are derivatives to increase your chances of success when participating in Crypto transactions on the Dex platform.
See more: Register MEXC account – Reputable Crypto broker
Advantages and Disadvantages of DEX exchange
DEXs have brought a new look to the world of online Crypto exchanges. However, they also come with their pros and cons.
Advantages of DEX exchange
- User anonymous mode
Decentralized exchanges offer complete anonymity to users. The platform does not require any registration constraints. Therefore, all personal information is absolutely confidential. Investors are not subject to other forms of identity checks.
- High security
One of the main fears is the fear of being attacked for information as well as assets. Because centralized money storage can become a target for any attacker. The media constantly reports on cyber attacks on popular platforms. Despite the numerous security measures implemented. This is a consequence of the custodial nature of centralized exchanges.
- There are safety controls
DEX exchange does not have access to user funds. This not only minimizes the risk of cyber attacks. It also prevents interference from third parties. For example, exchange administrators or local authorities. Thus, the amount of assets is not frozen. Withdrawals are not subject to delay or denial, and transactions are not blocked by the legislature.
- Moderate transaction fees
No third-party intervention makes transaction costs significantly lower. While centralized exchanges typically charge fees to order creators and order takers, DEX exchange users only need to pay fees to the network.
Disadvantages of DEX
- User experience
Many important trading features are not available on most decentralized exchanges. Examples include stop-loss orders, margin trading, technical analysis tools, and lending. To start trading, users need to adapt to browser extensions and smart contracts. The main drawback is that the interface of the exchange is not very user-friendly.
- Credential
Decentralized exchanges often have liquidity problems. Although they offer a wide range of trading pairs. However, the number of users is not enough to ensure liquidity. The liquidity of DEX exchange mainly depends on the number of trading participants on the platform. Because centralized exchanges still hold the advantage.
- Transaction Speed
The decentralization of nodes in the Blockchain chain means lower throughput. Centralized platforms have higher parameters due to the centralized server. This makes the average time to execute a transaction much shorter. Slower transaction speeds on DEX exchanges can lead to “slippage”. When a transaction cannot be executed, it leads to a change in the price of cryptocurrencies.
- Support
The lack of customer support in the DEX exchange leads to the trading process and accounts in Crypto trading. In case of problems, users will have difficulty finding support.
Conclude
DEX exchange has solved many problems that centralized platforms often face. This gives users a much safer way to exchange coins. Recently, Uniswap technology has appeared and helps convert ERC-20 Tokens quickly. At the same time, bringing transaction traffic on decentralized exchanges to a new level. That’s what we want to give you about DEX exchange. Follow Learn Crypto Trading to learn more great tips in investing!
FAQ about DEX exchange
How to access and use a DEX exchange?
To access DEX exchange, you need a supporting cryptocurrency wallet and connection to the respective Blockchain network. You can then access the DEX through an application or web browser.
Does DEX need to register an account like central exchanges?
No, DEX does not require registration of a crypto trading account. Users simply need to connect their wallet to the DEX’s interface to make transactions.
How are trading fees on DEX compared to central exchanges?
DEX trading fees are often lower than central exchanges due to the lack of third-party intervention. In fact, some DEXs charge very small or no fees at all.
