2024-10-09 10:17:57 Авторка: Inna Svatenko

Decentralized Exchange: Definition and Types of DEX

There are two types of exchanges in the crypto world: centralized (CEX) and decentralized (DEX). The former operate through intermediaries, while the latter, on the contrary, allow transactions directly between participants, providing autonomy and transparency.

In this article, we will look at what a decentralized exchange is, how to use such platforms, and what they offer.

What Is DEX?

When choosing a trading platform, understanding the mechanism of its operation is crucial. In simple terms, a decentralized exchange is a trading platform that allows you to exchange digital money using blockchain and smart contracts. DEX platforms specialize in P2P exchanges and do not store investors’ personal data and assets on their servers.

DEX: Advantages

Is it worth using decentralized trading platforms? Let’s first consider their pros.

No intermediaries

This minimizes the likelihood of freezing funds or problems with access to assets since users retain full control over transactions.

Anonymity

DEX platforms are not subject to legal regulations: there is no need to undergo verification (KYC), enabling traders to remain private.

Large selection of assets

While CEX exchanges require verification, testing, and approval at different levels, any token can be added automatically on DEX platforms.

DEX: Disadvantages

Knowing that DEX is a platform that has no governing bodies and is not tied to specific jurisdictions, you should consider the risks of working with it.

Limited liquidity

Some DEX exchanges may have lower trading volumes, making it difficult to execute large transactions.

Difficulty of use

DEX can have a confusing interface and complex features, which increases the risk of errors, especially among beginners. The lack of a centralized support team makes it more difficult to resolve issues.

Risk of scam

Since new tokens can be added without verification, there is an increased risk of encountering scam projects.

Types of Decentralized Exchanges

Having figured out what is a DEX exchange, let’s look at their types.

On-chain platforms

Applications are processed and stored on the blockchain. Using smart contracts, users create orders that are automatically executed when matched.

Off-chain platforms

Orders are processed outside of the blockchain. Users sign orders locally and send them to the server. If a match is found, the data is sent to the blockchain to finalize the transaction.

Automated Market Makers (AMMs)

Instead of order books, DEX uses liquidity pools where each pair of tokens maintains a specific ratio. When exchanging a smart contract, an AMM automatically calculates an exchange rate based on the current token balance, which provides liquidity and allows trading without waiting for matching orders.

Aggregators

Services automatically route orders through multiple exchanges, providing access to more liquidity and better terms.

How to Get Started with DEX?

You will need a DEX-compatible cryptocurrency wallet. There are four steps to complete the transaction:

Find an exchange with suitable conditions and connect your wallet to it;

Choose a currency pair and create an exchange request, specifying the amount and other parameters;

Wait for matching orders and automatic execution of the transaction;

Disconnect the cryptocurrency wallet from the platform.

DEX Development Outlook

The prospects of DEX look promising due to the growing interest in decentralized finance (DeFi) and increased liquidity. The convenience of the platforms, the introduction of new tools, and the connection to traditional assets can make DEXs more attractive in the market.

Top-3 Decentralized Exchanges (DEX)

Let’s take a look at the features of the most popular DEX trading platforms.

Uniswap

It is a high-liquidity DEX on the Ethereum blockchain that supports multiple networks. The platform uses the AMM model for automated token trading.

Curve Finance

The platform focuses on trading stablecoins and tokens with similar values. It offers low commissions and minimal slippage thanks to narrow price fluctuation ranges.

PancakeSwap

It is a DEX service on the BNB Smart Chain with an AMM mechanism that allows you to exchange tokens, provide liquidity, and participate in farming and lotteries.

FAQ

1. What is the difference between a decentralized exchange and a centralized one?

A decentralized exchange enables transactions without intermediaries, directly between users, and does not store their data. A CEX platform is controlled by the company that manages the assets and also requires registering an account and going through verification.

2. How to choose the right decentralized exchange for trading?

It’s important to consider liquidity, supported tokens, commissions, and compatibility with your wallet. Also, pay attention to security and user reviews.

3. Can I use a decentralized exchange to exchange fiat currencies?

No, DEX platforms only work with digital currencies.

Want to exchange cryptocurrency to fiat quickly and safely? ObmenAT24 guarantees data protection and allows you to make a transaction in 10-15 minutes. We have high reserves and the lowest fees.