The appearance of the DEX marks an important transition from the traditional trading model to a decentralized model. Not only contributing greatly to the development of the DeFi ecosystem, the DEX exchange also opens up many opportunities for safety, privacy, and transparency for users. If you are interested in this cryptocurrency exchange. Let’s Learn Crypto Trading learn more about DEX through the article below!
Learn about the DEX decentralized exchange
In recent years, the strong development of decentralized exchanges is undeniable. Thereby attracting widespread attention from investors around the world. So what is a DEX? Read the following information immediately to find the answer.
What is a DEX?
DEX is also known as Decentralized Exchange. This is a cryptocurrency exchange built and operated according to a decentralized mechanism on Blockchain platforms. Some of the most prominent DEXs today include Uniswap, PancakeSwap, Trader Joe… These exchanges allow investors to buy or sell P2P peer-to-peer rights on the Blockchain ecosystem without any fees. any intervention from a third party.
In particular, DEX operates based on smart contracts on the Blockchain platform. So it will automate transaction processes. At the same time, ensuring transparency, safety, and reliability when trading Cryptocurrency for users.
What is the nature of DEX operations?
For DEX, when trading you can create and hold assets using your wallet. This means you don’t need to go through any organization, but you still have the right to store, buy, or sell the cryptocurrencies you want. Furthermore, buying/selling also takes place openly and transparently. When a buy or sell order is made, DEX will notify and wait for other investors to accept the buy or sell. Once the two parties have agreed on the price, the transaction will immediately proceed.
See more: What is Crypto? Knowledge about Crypto trading
What makes DEX an important piece of the puzzle in Crypto
So what makes DEX one of the important pieces in the Crypto market? That is:
- Decentralization: This is one of the most prominent features of DEX investing. Thanks to that, users have complete control over their assets. They can conduct transactions directly on the Blockchain themselves, without having to go through an intermediary. This creates independence and safety in asset management.
- Anonymity: In addition, DEX also possesses user anonymity. Instead of having to provide personal information to participate in transactions, on DEX, traders can trade completely anonymously.
- Promoting DeFI applications: DEX helps traders easily participate in borrowing, borrowing, investing, and management activities… without having to rely on any traditional intermediary structures.
Benefits and limitations when investing in DEX
To help new traders better understand decentralized exchanges. Here are the pros and cons when trading DEX that you need to keep in mind.
Favorable conditions when trading with DEX Investing
Talking about the favorable conditions that DEX creates for users, the following 3 outstanding points must be mentioned:
DEX has control
First, the DEX has control. Meaning, that users have complete ownership of their assets. At that time, all transactions will take place P2P peer-to-peer through smart contracts. This is what makes the biggest difference between CEX and DEX. Because when using CEX, you will give the right to hold assets to the exchange. This means that you are only being provided with the right to access and use those assets by the exchange. CEX can even lock user access at any time.
What is DEX anonymity?
Second, when investing in DEX on decentralized exchanges, traders will be anonymous. Therefore, when making a transaction, the exchange only knows the number of wallets without knowing who is doing it. This is an extremely good feature, helping traders keep their identities confidential and protect personal information.
DEX security level
Finally, the security level of DEX is extremely safe. Although many centralized exchanges have been attacked by hackers, causing serious consequences. For example: losing all assets, revealing personal information… with DEX that seems impossible. Because user assets are based on the Blockchain platform and are secured by nodes in the network.
Some limitations to consider of DEX
However, it is impossible to deny some shortcomings of DEX such as:
User experience is not high
User experience on decentralized platforms is not high. The interface may not be as smooth as other CEX exchanges. But this is being improved by the developers shortly.
DEX liquidity is low
Besides, liquidity on DEX exchanges is still quite low. Compared to other centralized exchanges, this level of liquidity is much lower. This is because the number of traders using DEX to trade is still small, causing low liquidity. However, this limitation can be overcome if DEX attracts more and more traders.
DEX has transaction latency
Finally, DEX transactions have low latency. This is also another weakness that makes decentralized exchanges become picky about users. Because orders are executed on-chain on the Blockchain and must wait for confirmation from other traders. Therefore, this leads to low transaction latency.
Classification of DEX exchanges in the Crypto market
As mentioned above, DEX decentralized exchanges are increasingly developing, so there are now many DEX exchanges. And they will all be classified into many different criteria with 3 common forms:
Classify DEX Investing according to order order-matching mechanism
Experts can classify DEX Investing according to its order-matching mechanism. Accordingly, one of the most popular order-matching mechanisms on DEX exchanges is Order Book. For this mechanism, the order will be executed if the price of the order book matches the price that the trader has set. Besides, trading under this mechanism will help users know what the matching price is and make it easier to place a Limit Order to trade at a reasonable price. Some popular DEX exchanges that use the Order Book mechanism include IDEX, dYdX, Serum, Dexalot…
What is DEX liquidity classification?
If we consider the source of liquidity, we can divide DEX into two types: Liquidity Center and Liquidity Aggregator, of which:
- AMM Liquidity Center: These DEX exchanges deploy their liquidity pool. This means they have their liquidity without having to depend on a third party. Including Uniswap, Sushiswap, PancakeSwap…
- AMM Liquidity Aggregator: These are DEXs that aggregate liquidity from Liquidity Center exchanges. This exchange can aggregate liquidity from many AMMs, providing users with the best trading route and price. However, the liquidity of this exchange will depend on the Liquidity Center. For example Paraswap, Match, and 1Inch…
Classify DEX by transaction type
Or DEX exchanges can be classified according to transaction types, specifically:
- Spot-Spot Exchanges: These DEXs allow traders to trade directly between cryptocurrency pairs and Tokens. For example Uniswap DEX.
- Leveraged Exchanges: Some exchanges offer leveraged DEX trading features. This allows users to open leveraged positions to increase their chances of profit. For example, dYdX exchange.
- Derivatives exchange: This type of exchange allows trading with derivative products such as futures and options contracts. Prominent is DEX GMX.
What are the criteria to evaluate a DEX exchange?
So how to evaluate whether a decentralized exchange is quality and suitable for you or not? Normally, traders can rely on some of the following criteria:
Evaluated through the level of reputation of the DEX exchange
First, traders can rely on the number of years of operation, and how to handle problems or potential projects such as Launchpad, and Launchpool… to evaluate any DEX. If you still don’t understand what is Launchpad or how Launchpool works, please follow Learn Crypto Trading for updates.
In addition, reputable DEXs will often provide clear, complete, and transparent documents. At the same time, build communication channels such as Telegram, and Discord… to be able to update Crypto news as quickly and accurately as possible for users.
User safety and security of decentralized exchanges
Besides, you can focus on the safety and security of the exchange. Because DEX decentralized exchanges are often targeted by cyber attacks. Therefore, you should check whether the exchange has been smart contract audited or not. Also, learn about the exchange’s previous attacks. If so, is the compensation policy appropriate and ensures benefits?
Transaction fees, DEX liquidity
Or evaluate DEX through transaction fees, including Swap and gas fees. In particular, the Swap of decentralized exchanges usually ranges from 0.3%. The gas fee is the fee the user must pay to the node for the transaction to be processed. In particular, traders can use the total value-locked index or trading volume to make the most objective comments about the exchange.
User experience level on DEX Investing
In particular, the level of user experience when using DEX Investing is also an extremely important criterion. Because a good experience will be the factor that helps the exchange attract more users. These things are often expressed through factors: a friendly interface, fast processing speed, and integrated logic features…
Features and improvements
Finally, there’s no shortage of features and innovations to offer. If DEX has many useful uses, it will retain customers. Furthermore, product innovation is also the key to proving the reputation of the exchange. At the same time, it increases competitiveness compared to other decentralized investment projects.
Top 3 most reputable decentralized DEX exchanges today
According to experts, objectively evaluating any DEX exchange is extremely difficult for traders. To help investors overcome that, here are the top 3 reputable decentralized exchanges introduced by Learn Crypto Trading.
What is Uniswap V3 DEX?
The first name in the top 3 highest quality decentralized exchanges is Uniswap V3. According to statistics, Uniswap is the DEX with the largest trading volume in the Crypto market. And is one of the leading DEXs with many improvements in the 3rd version. Even, Uniswap V3’s daily trading volume is up to 1.2 billion USD with more than 1677 different trading cryptocurrency pairs.
In particular, the project is implementing a horizontal expansion strategy when moving into outstanding L2 solutions. For example Optimism, Polygon, Arbitrum… Most recently, the community approved the proposal to deploy the plan on the BNB Chain.
PancakeSwap DEX
The second name mentioned is PancakeSwap. So what is PancakeSwap DEX? This is the largest decentralized exchange on the BNB Chain platform. Currently, PancakeSwap provides users with a variety of products: lottery, NFT, Swap… and has expanded its Ethereum and Aptos operations.
According to statistics, the trading volume of this DEX exchange on the BNB Chain is about 222 million USD per day with more than 3604 different trading pairs.
Sàn DEX Curve Finance
The third name in the top decentralized exchanges is Curve Finance. This AMM platform has many similarities with Uniswap DEX and Balancer. However, Curve uses a more efficient algorithm so it has the lowest fees, slippage, and losses among decentralized exchanges. Currently, the exchange has expanded its operations on many platforms such as Arbitrum, Fantom, Polygon… Accordingly, the current trading volume of the exchange is 154 million USD with more than 105 different trading pairs.
What is the difference between CEX and DEX?
When talking about DEX, people always think of CEX, because these are the two most popular types of exchanges today. So, what is the biggest difference between CEX and DEX? Please refer to the comparison table below for more details.
| Comparison factor | DEX exchange | CEX exchange |
| Asset management party | Users of the platform | Third-party (intermediary) |
| Trading Account | Do not have an account | Have account |
| Number of Tokens supported | Without limits | Limited |
| Privacy | High | Short |
| Security | Limit the risk of being attacked | Risk of being attacked |
| Transaction fees | Transaction fees on decentralized exchanges depend on the network | Calculate transaction fees |
Should you trade on CEX or DEX?
Choosing to trade on CEX or DEX is also a difficult thing for traders. However, according to expert advice, if you are new to the Crypto market, you should get familiar with the CEX exchange first. Because the CEX exchange interface is quite friendly, helping users get used to basic trading methods. At the same time, know how to invest in Crypto effectively and keep your account safe.
After a period of testing, traders can switch to using DEX. Continue to experience decentralized exchanges to find opportunities and increase profits when trading DEX.
See more: Register MEXC account – Reputable Crypto broker
Some things to keep in mind when trading on CEX and DEX exchanges
Don’t forget to keep in mind some of the following important things to note when trading on CEX and DEX to ensure your safety:
- Check the URL address, and avoid using fake or phishing websites.
- Check the transaction before confirming to avoid unexpected errors.
- Enhance safety by using hardware storage wallets, ensuring assets are protected from cyber-attacks.
- Choose the right trading pair and liquidity. That helps you avoid loss in making DEX investments.
- Do not trade Margin and Leverage if you do not clearly understand them. Because it can bring big profits but also comes with high risks.
- Update Crypto news continuously to avoid potential risks.
Summary:
Not only does it represent the development of decentralized trading methods, but DEX also makes an important contribution to the perfection of the DeFi ecosystem. Hopefully, the above sharing will help readers better understand this trading exchange. Don’t forget, to follow Learn Crypto Trading to receive more useful information about the Crypto market!
FAQs:
Is the DEX decentralized exchange safe?
Any trading platform has potential risks. However, DEX is much more secure than other centralized exchanges.
Does the DEX integrate hardware wallets?
Most DEX exchanges integrate hardware wallets such as Ledger Nano S or Trezor. Users can send digital assets directly from hardware wallets to smart contracts on decentralized exchanges.
What is the future development trend of decentralized exchanges?
Although the economy in 2021 is in crisis due to the Covid pandemic, DEX is still growing. It is predicted that the potential of services on DEX will be very broad.
