Decentralized exchanges, or DEXs, have been highly anticipated among crypto users. They were supposed to bring the true nature of cryptocurrencies – self-regulated, autonomous, and transparent. And cheaper – due to a lack of mediators.
But what exactly is a decentralized exchange, what are the benefits, and are they game-changers? Well, we’re about to find out in our DEX exchange review. Keep reading!
Many open-source projects “fight” for the glory, but during our DEX exchange review, we’ll highlight the top three players on the market.
Uniswap
Uniswap is Ethereum’s largest DEX and stands out with daily volumes often exceeding $4 billion. As an AMM DEX, it uses algorithms for efficient swap rates and allows users to create or use existing liquidity pools. Liquidity providers earn from trading fees. Governed by a DAO, Uniswap offers autonomy and over 400 tokens, enabling passive earnings through staking. However, it doesn’t support fiat transactions, carries impermanent loss risks, and incurs gas fees. Its high trading volume and low transaction fees make it a reputable choice.
SushiSwap
SushiSwap, a legacy name in the crypto industry and an evolution of Uniswap, stands out among the top decentralized exchanges. It offers users passive earnings through staking its native token, SUSHI, and provides governance benefits. Known for its unique DEX architecture that reduces market centralization, SushiSwap features low transaction fees and compatibility with most ERC-20 tokens. Its interface is highly intuitive, catering well to users. Yet, its reward structure can be complex, and it may need to catch up to cutting-edge technology rivals.
KyberSwap
KyberSwap, Kyber Network’s flagship AMM DEX, differentiates itself with multiple deep liquidity pools, making it a favored protocol for many DeFi applications. It supports over 1,500 tokens and thousands of swap pairs and rewards liquidity providers with a 0.3% fee in its native token, KNC. Ideal for experienced crypto users, it offers advanced options like staking, farming, and DApp solutions. It’s not ideal, though. The absence of fiat deposits and a mobile app, alongside its complexity, may pose challenges for new traders.
The Best CEXs
We mentioned centralized exchanges as a viable option for those who value security and user-friendliness. But which CEXs stand out? Let’s see.
PlasBit
PlasBit is a crypto bank regulated by the Polish government. It’s hard not to notice its focused approach towards crypto owners who want to pay bills and manage everyday finances using their digital assets, unlike other exchanges, which are flexible for investors but not very helpful for ordinary people.
The crypto wallet custody service offered by PlasBit is another crucial feature. It means that 100% of users’ funds are stored offline and insured, which addresses significant security concerns. With only company funds online, this setup offers considerable protection.
The crypto debit card from PlasBit allows customers to shop like with a standard debit card. The card (compatible with Visa and Mastercard) swaps crypto to fiat in real time and bridges the gap between digital and traditional currency use.
When checking the platform on TrustPilot, it scores 4.7 out of 5, which is high for a crypto service provider.
Binance
Binance is still a significant player when it comes to centralized crypto exchanges. It tops the list for trading volume (over $10 billion constantly), and it has a ton of cryptocurrencies available on the platform – Bitcoin, Ethereum, Litecoin, and many popular altcoins, as well as notable new names.
The Binance Card was a considerable advantage, as it was a debit card with a lot of functionality (just like PlasBit). Still, in late December, Binance stopped supporting crypto debit cards in the European Economic Area, a significant blow for European investors.
Binance’s customer support team is well-known, as are its educational materials, which include many blogs and guides translated into multiple languages.
Kraken
Kraken is one of the legacy CEXs (it was founded in 2011), and it supports 220+ coins, which include Bitcoin, Ethereum, Solana, and Dogecoin, as well as other exciting options. Unlike other platforms, Kraken offers two versions – Kraken and Kraken Pro- for professional investors.
The user interface is so-so, with advanced users taking advantage of the San Fransisco company. The customer service team is available 24/7, but when checking the TrustPilot scores, it only scores 2.1 out of 5 stars, the same as Binance.com.
What are DEXs?
Decentralized exchanges, commonly known as DEXs, stand at the heart of decentralized finance (DeFi). They operate without central authority figures or intermediaries, facilitating direct peer-to-peer cryptocurrency transactions via smart contracts on blockchains like Ethereum or Solana.
Unlike traditional centralized exchanges (CEXs), DEXs operate on blockchain technology, typically using smart contracts to automate transactions without a governing body.
DEXs play an integral role in the DeFi (Decentralized Finance) ecosystem, representing a shift towards financial systems that are more open, transparent, and accessible. Crypto fans who fancy interesting new tokens can also take advantage of various options, which isn’t the case with their centralized counterparts.
How Do DEXs Work?
Before we explain how end customers can utilize them, people need to see what types of crypto exchanges can “exist” from DeFi platforms. We can’t have a proper DEX exchange review without bringing up the main types of DEXs and how they work.
Automated Market Makers (AMMs)
Automated Market Makers (AMMs) have reshaped how we trade assets. They’ve ditched the old-school order book approach. Instead, they use liquidity pools.
Anyone who owns tokens can jump in and help out. Crypto investors (or, as otherwise known – stakers) lock their cryptocurrencies in a pool built on smart contracts. They’re the fuel for this trading machine, earning some cash from transaction fees for their trouble.
Automated Market Makers (AMMs) in decentralized exchanges rely on a critical algorithm called the constant product formula to drive their core functionality. The formula autonomously adjusts asset prices in real time, reflecting the current demand and supply dynamics.
AMMs aren’t just about making trading more accessible. They also beef up security and keep things stable, all thanks to the blockchain’s superpowers, like being open for all to see and hard to tamper with. Some of Solana’s top 10 decentralized exchanges, like Raydium, are AMM-based.
Order Book DEXs
Order Book DEXs operate like a dynamic ledger that lists all current buy and sell requests for various cryptocurrency pairs. Traders can view these open orders to make informed decisions about their trades. Unlike AMM, where a preset formula determines prices, market participants can set the price at which they wish to buy or sell an asset.
These platforms often provide advanced trading features, including limit orders and sometimes leveraged trading options. Leveraged trading allows traders to borrow funds, increasing their potential gains (or losses).
DEX Aggregators
DEX aggregators scan multiple DEXs in real time and ensure users find the best prices and deepest liquidity for their trades without manually comparing each exchange. They work on the same principle as Booking.com or Amazon.
These tools enable traders to carry out transactions more efficiently by minimizing slippage, which helps prevent substantial price changes between the placement and fulfillment of a trade order.
This efficiency comes from pooling together various sources of liquidity, meaning orders are more likely to be fulfilled quickly at desirable prices. Understanding and utilizing DEX aggregators for beginner crypto traders exploring decentralized exchanges can streamline the trading process, save money on fees, and improve your overall trading experience.
Advantages of Using DEXs
Knowing what a crypto exchange is is just the first part of finding success. DEXs have distinctive advantages, which we will review in the following paragraphs.
Wide Token Availability
Decentralized exchanges (DEXs) offer a broad spectrum of tokens for trading. They include well-known cryptocurrencies like Solana and Ethereum and many newer and lesser-known digital assets, especially coins that have completed their initial coin offerings (ICOs).
A significant advantage of decentralized exchanges over their traditional counterparts is their extensive access to virtually every crypto token. Unbound by the stringent regulatory frameworks that often limit centralized exchanges, DEXs act as portals to a whole new ecosystem.
These platforms are sought-after for their broad range of offerings and their dynamic nature, with new listings introduced regularly at a much faster pace than CEXs. Decentralized exchanges, therefore, stand as pivotal platforms for those who value new coins and exciting concepts.
Anonymity
Anonymity is one of the critical advantages of using decentralized exchanges (DEXs). Unlike traditional platforms that often require customers to provide personal data like a passport or driver’s license, DEXs allow users to trade cryptocurrencies without revealing their identity.
That level of privacy arises because no central authority demands know-your-customer (KYC) protocols. Traders value this feature as it protects their personal information and trading activities from prying eyes.
Such privacy does not mean sacrificing security; it improves it by minimizing the risk of identity theft or fraud. Users interact directly with smart contracts on the Ethereum blockchain (and it’s not limited to Ethereum) when trading on a DEX, which removes the need for a third party to handle funds or personal info.
Through this approach, customers gain control over their crypto assets and can trade more confidently, ensuring their anonymity is maintained.
Reduced Security Risks
Decentralized exchanges offer a significant advantage in terms of security. Unlike traditional centralized platforms, DEXs empower users by allowing them to keep control over their private keys and funds.
Transactions on DEXs are processed using smart contracts, which automatically execute trades without the need for intermediaries and governing bodies that have access to user data. On top of that, there are many decentralized exchanges on BSC, Solana, and Ethereum, so crypto
Disadvantages of DEXs
While decentralized exchanges offer a new frontier in trading, they have challenges. Here, we’ll review some of the most significant issues when dealing with exchanges without a centralized entity.
Limited User Experience and Support
Decentralized exchanges (DEXs) often present challenges in user experience, particularly for those new to the cryptocurrency industry. The interfaces can be less intuitive and user-friendly than centralized exchanges (CEXs), potentially deterring less tech-savvy users. Such platforms are made as simplistic as possible due to developers’ limited resources, which is typical for open-source projects.
Moreover, DEXs typically need more robust customer support systems that users can find on centralized platforms. Users are primarily on their own when learning the complexities of the exchange, with little to no assistance in case of transaction errors or wallet complications. This absence of support can be daunting, especially when dealing with financial transactions where mistakes can be costly.
Risks of Smart Contract Vulnerabilities
While DEXs offer enhanced security in some aspects, they are not immune to risks. A significant concern is the reliance on smart contracts alone. These contracts, being self-executing pieces of code, are susceptible to bugs and vulnerabilities. If a smart contract is flawed, it can lead to significant losses, as seen in various instances where hackers have exploited such vulnerabilities.
Furthermore, the decentralized nature of these platforms means there is no central authority to oversee and rectify such issues promptly. The security responsibility largely falls on the individual user, requiring more vigilance and understanding of the technology. While advantageous in many ways, this decentralized approach can expose users to less prevalent risks in centralized environments.
Liquidity and Slippage Concerns
Liquidity is another critical issue for many DEXs. Unlike centralized exchanges, which often have large trading volumes and market-making activities, DEXs can suffer from lower liquidity. Such limitation becomes particularly evident when dealing with less popular tokens or during market stress. Low liquidity can lead to higher slippage – the difference between the expected price of a trade and the price at which the trade is executed. Huge discrepancies can result in less favorable trade outcomes for users.
The liquidity issue also impacts the range and depth of market pairs available on DEXs. While they offer a wide variety of tokens, the trading pairs may only sometimes have sufficient market depth, which leads to higher price impacts when executing trades. That can deter more prominent traders or institutional investors, worsening liquidity challenges.
Unregulated Token Listings
The unregulated nature of token listings on decentralized exchanges poses a significant challenge, particularly for those new to the industry. Without sufficient oversight, there’s a risk of encountering numerous tokens, including potential scams or low-value “junk” tokens that lack proper vetting. Traders in this environment must exercise caution and conduct thorough research to protect themselves from fraudulent activities.
Without stringent listing procedures, anyone can create and list a token, sometimes directing even well-educated traders toward unpredictable risks.
Safety and Responsibility
When operating on decentralized exchanges (DEXs) such as UniSwap and SushiSwap, the trade-off for remarkable flexibility is the responsibility placed on the users, especially in a failure or a rug pull. In these open-source projects, there is no central authority or customer support to fall back on. Users explore these platforms independently, with no one on the other side to intervene in case of issues or disputes.
This autonomy means that the risk is inherently taken by the crypto owners themselves. They must be alert in understanding the projects they invest in, the workings of the DEXs, and the nuances of the smart contracts they interact with. The decentralized nature of these exchanges, while offering freedom and variety, also demands a higher level of personal accountability and informed decision-making to ensure the safety of one’s digital assets.
How do you buy crypto on a decentralized exchange?
To buy crypto on a decentralized exchange (DEX), you first need a crypto wallet that supports the exchange’s blockchain. Most tokens on decentralized exchanges can be bought with Ethereum, as many new crypto projects use the ERC-20 standard. After setting up and funding your wallet with Ethereum, connect it to the DEX.
Then, select the token you wish to purchase and place your order. The DEX facilitates a peer-to-peer transaction without an intermediary, directly exchanging your Ethereum for the chosen tokens, which you can then add to your wallet. Remember, transactions on DEXs are irreversible, so proceed with caution.
However, buying crypto directly with a debit card, bank transfer, SEPA, or fiat currency on a decentralized exchange (DEX) is generally impossible. But there is one way to buy crypto with fiat on a DEX – using an app like MoonPay to exchange fiat for cryptocurrencies. But we must mention the biggest players on the market before we can complete a DEX exchange review.
What Is a CEX?
A CEX, or a Centralized Exchange, acts as a middleman between buyers and sellers in the cryptocurrency market. Unlike decentralized platforms without central control, a CEX has an overseeing authority that handles all operations.
Such structure allows for more user-friendly experiences with features like advanced trading tools and customer support. Users must complete identity verification processes such as KYC/AML before they can trade so that they become compliant with regulatory standards.
Centralized exchanges boast higher liquidity levels, meaning quicker trades and better user prices. They also offer account recovery services; if crypto owners lose access to their account or funds due to a password issue or other problems, there’s someone available to help retrieve them.
How Does a CEX Work?
Centralized exchanges, or CEXs, operate like traditional financial marketplaces but with crypto assets. They connect buyers with sellers and facilitate trades of cryptocurrencies for other digital assets or fiat currencies such as USD or EUR.
Users create accounts on these platforms and deposit funds – either cryptocurrency or government-issued currency (like US dollars) – which they can use to execute trades based on current market prices.
These exchanges set up trading pairs that reflect the value of different cryptocurrencies against one another and let users swap their holdings through a straightforward process.
Unlike decentralized platforms, a central authority runs CEXs – they manage all operations, including order matching, security enhancements, and customer support services. They can be held accountable in case of a security breach.
Centralization brings certain conveniences; transactions are complete since there’s no need for network consensus each time a trade occurs. Just as banks provide custodial services to safeguard money, CEXs offer similar protections for digital assets and insurance mechanisms to mitigate potential losses from cyber theft.
Users appreciate the simplicity of centralized exchanges: after signing up and going through identity verification procedures (to comply with various regulations), they gain access to user-friendly interfaces where they can monitor market data, view their portfolio balance in real-time, initiate withdrawals and deposits easily using mobile applications or web interfaces.
Security measures such as two-factor authentication are standard practices within these platforms, ensuring an added layer of safety over individuals’ investments.
The Differences Between DEXs and CEXs
There is a night-and-day difference between DEXs and CEXs, which all comes down to personal preferences. Let’s have a deeper look.
User Interface and Ease of Use
Centralized Exchanges (CEXs) like PlasBit and Binance are known for their user-friendly interfaces, which makes them accessible to a wide range of users, including those new to cryptocurrency. They offer a familiar experience akin to traditional online banking, with easy-to-navigate platforms and dedicated customer support.
In contrast, decentralized exchanges (DEXs) like UniSwap or MangoMarkets cater more to crypto enthusiasts comfortable dealing with less intuitive interfaces. The user experience in DEXs often requires higher technical knowledge, making them less optimal for the average person who may find these platforms overwhelming.
Security and Control
CEXs provide a level of security that is more aligned with traditional finance. They employ two-factor authentication, withdrawal whitelists, and insurance policies to protect user funds. However, this centralized control means users must trust the exchange with their assets.
On the other hand, decentralized exchanges allow users to maintain control over their private keys and funds, aligning with the ethos of decentralization in cryptocurrency. However, this also means that security responsibility falls entirely on the user, which can be daunting for those who need to be better versed in digital asset security.
Liquidity and Trading Volume
CEXs typically have higher liquidity and trading volumes, making them ideal for users with significant funds who wish to execute large trades without significantly impacting the market price. High liquidity ensures more stable prices and the ability to enter or exit positions quickly.
DEXs, while growing in popularity, often need help with liquidity issues, especially for less popular tokens. It can lead to higher slippage and less favorable prices for trades, a significant consideration for those trading in larger quantities.
Regulatory Compliance and Anonymity
CEXs operate under regulatory frameworks, adhering to laws and regulations like Know Your Customer (KYC) and Anti-Money Laundering (AML) policies. The compliance provides a sense of security and legitimacy but at the cost of anonymity.
Decentralized exchanges offer greater anonymity since they typically do not require personal information for trading. It appeals to those valuing privacy but also means less regulatory protection, which can concern more traditional or risk-averse investors.
Asset Variety and Access
DEXs often provide a more comprehensive array of tokens, including newer and less-known cryptocurrencies. This variety is due to the permissionless nature of listing assets on a DEX, offering a playground for crypto enthusiasts eager to explore emerging projects.
Conversely, CEXs are more selective in their listings, focusing on established cryptocurrencies. This selectivity can be a positive for the average user or large investors who prefer investing in more proven and stable assets.
Conclusion
Our DEX exchange review is coming to an end. Decentralized exchanges are a go-to option for many crypto enthusiasts who want to explore exciting opportunities and enjoy greater anonymity when swapping their coins. They have lower taxes than CEXs, but sometimes, the price you pay might be steep – no authority regulates them, and in case of a hack, your funds are not safe, leaving you exposed. That is why, even if they offer various options and fewer intermediaries, there are other options for people who want to put $10K or more into their crypto wallets. Top-tier regulated exchanges like PlasBit let you hold crypto, but you can still operate with coins like fiat money.