If you’re a true crypto enthusiast, you’ll be all-in for decentralization, privacy, and financial sovereignty, which decentralized exchanges (DEXs) hope to protect and preserve.
You’re doing yourself a severe disfavor, risking too much, and missing out on a lot of action – and potential profit – if you’re not already trading on DEXs.
In this article, II will reveal everything there’s to know about decentralized exchanges and why they should matter to you in the future.
What are Decentralized Exchanges?
A decentralized exchange is a non-custodial cryptocurrency exchange that enables individuals to trade directly and securely with one another without a central coordinating authority.
One of the significant advantages of decentralized exchanges is that they do not maintain custody of your funds. Thus, the possibility of being scammed or losing money due to exchange hacks, market manipulations, server downtimes, and other associated problems with centralized exchanges is near zero.
In this article, I will show you how to trade cryptocurrencies easily and securely without ever leaving your wallet.
An exchange is considered fully decentralized only when all of the following four (4) core functionalities are NOT centralized:
- Capital deposits
- Order books
- Order matching, and
- Asset exchange.
However, it’s tough for the average crypto investor and trader to verify how decentralized a particular DEX is, as many decentralized exchanges do not have fully decentralized core functionalities.
How Does Decentralized Exchanges Work?
With decentralized exchanges, you’re always in complete control of your crypto assets, and trading on some DEXs can be more straightforward than you imagine.
All you have to do is:
- Connect your wallet to the exchange or create a new wallet via the exchange platform and securely back up your private key.
- Fund your wallet with the crypto asset you want to trade and start trading.
- You submit a buy or sell order on the exchange, which goes into the order book
- .If your order matches another trader’s, both orders are sent to a smart contract and executed accordingly.
- The crypto assets are then transferred to the respective users’ wallets.
The whole process, from order matching to order execution and transfer of assets, is mishandled by the smart contract automatically.
Thus, it is nearly impossible for DEXs to be hacked or be subject to regulatory scrutiny.
Decentralized exchanges are no respecter of countries as anyone in any country can post an order to a DEX and trade freely with other people regardless of what country they reside. in
Types of Decentralized Exchanges
There are two types of decentralized exchange:
- Currency-centric
- Currency-neutral
Currency-Centric DEXs
Currency-centric decentralized exchanges are built on top of a single blockchain – such as Ethereum – and support trading that particular cryptocurrencies – such as $ETH and other Ethereum-based ERC-20 tokens.
A currency-centric exchange built on the TRON blockchain will trade only TRX and TRX-20 tokens. The same goes for exchanges built on other intelligent contract blockchains such as Waves, EOS, etc.
Good examples of Currency-centric decentralized exchanges are IDEX, Uniswap, etc.
Currency-Neutral DEXs
Currency-neutral decentralized exchanges are the newer approach designed to connect with different native cryptocurrencies of other blockchains.
In a currency-neutral decentralized exchange, orders are broadcasted and matched directly on the blockchain through a smart contract, which acts as trustless escrow. Assets are exchanged via “atomic swap” after a successful trade.
Good examples of DEXs in this category are Bisq, altcoin.io, and flip. Me.
What are the Advantages of Decentralized Exchanges?
- Non-custodial and trustless. Decentralized Exchanges do not require you to trust them with the security of your funds. You don’t even need them to be sincere or genuine –the founders can be scammers, employees can go rogue, and hackers can take over the exchange for all you care without you losing your funds because your coins are in your wallet and reside directly on the blockchain –not the exchange.
- Unlike centralized exchanges, DEXs do not require personal information –not even your email address is required before you can trade on decentralized exchanges.
- Decentralized Hosting: Server downtime is highly unlikely with decentralized exchanges because their hosting is distributed among participating nodes in a decentralized computing network.
- Lower Fee: Fees on decentralized exchanges such as Binance Dex. It is shallow, and executed orders are even free. You are only charged a meager fee for canceled or expired orders on Binance Dex. However, I understand that the fees on some other DEXs can be unreasonable.
- More Secure: Because your funds never leave your wallet, you’re safe no matter what happens with the exchange. You should have nothing to worry about as long as you keep your wallet free from hackers and third-party access,
- No Limitations: On centralized exchanges, there are limits to how much you can transact or withdraw within a specific time limit and based on the level of KYC you’ve passed. That’s not the case with DEXs. If you have the funds, you can trade as much as you want within any timeframe.
- Uncensorable: On centralized exchanges, your account can be suspended or frozen, or funds are practically taken from you by the exchange for many reasons. That’s impossible on decentralized exchanges, even if you’re trading with stolen Bitcoin or any other crypto.
What are the Disadvantages of Decentralized Exchanges?
- You are fully responsible for your security. Decentralized exchanges cannot help if a third party gains access to your wallet or trading account. Your key, your fund, your security, your responsibility.
- Lower Liquidity. Liquidity on Decentralized is extremely low compared to centralized exchanges. However, things are changing as many more people discover that DEXs are the ideal place and way to trade cryptocurrencies.
- Limited functionality. Unlike centralized exchanges with their advanced trading tools, DEXs have limited features and functionalities. Features such as stop-losses, take-profit, margin trading, lending, etc., are not available on Decentralized Exchanges yet.
- Difficult for non-technical users. DEXs are a little too technical compared to their centralized counterparts. However, some DEXs, such as Binance Decentralized Exchange, have made it much simpler for beginners to find to trade, so this issue should be a thing of the past as the market evolves.
List of Decentralized Exchanges:
According to DefiPrime, below is the list of the most promising decentralized exchanges currently available. No. 1 is my personal favorite.
- Binance DEX
- EtherDelta
- exchange
- AirSwap
- Atomex
- Balancer
- Bamboo relay
- Bancor
- Bisq
- Curve
- AG
- DDEX
- DeversiFi
- blue
- Dolomite
- Fairfax
- ForkDelta
- INDEX
- JellySwap
- KyberSwap
- Liquidity
- Loopring Exchange
- Matcha
- Mesa
- NO
- Newdex
- Oasis
- ParaSwap
- Shiftly
- Switcheo
- Tokenlon
- Title Swap
- TronTrade
- Uniswap Exchange
- WhaleEx
- YOLO
- dYdX
- Cafe
Conclusion
Trading on centralized exchanges goes directly against the true spirit of cryptocurrency, which was created to minimize and possibly eliminate the reliance on third parties (banks) that re-traded on centralized exchanges.
What’s even more impressive is how they would guilt you into thinking that you are paranoid if you want privacy “too much,” in reality, they are suffocating you with undue scrutiny and control over every area of your life – especially your money.
To realize the full potential of cryptocurrency and blockchain technology, we must rely first on decentralized platforms and avoid decentralized infrastructures as much as possible, even as decentralized technologies are still developing and evolving to be what they should be.
What decentralized exchanges do you use to trade your crypto assets, and what do you think about decentralized exchanges generally? Please share with us in the comments section below.
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