What is a Decentralized Exchange?
Decentralized Exchange, or DEX meaning in the crypto market, is a marketplace for crypto traders where transactions occur peer-to-peer or between trading partners without intermediaries or financial institutions such as banks, brokers, or payment processors. This is made possible through the mathematical mechanism called Automated Market Maker (AMM), which allows the freedom for all kinds of transactions that connect people globally without any restriction.
Now let’s look at how Decentralized exchange vs Centralized exchange is different. While the DeFi market is becoming a competing alternative to ordinary Centralized Exchange, DEX plays a crucial role in driving the DeFi market forward. In comparison, DEX typically offers lower servicing fees, faster processes, and a wider service area. Furthermore, traders can get access to all kinds of crypto assets on DEXs, compared to CEX, which only limits some tokens. However, in exchange, crypto traders have to burden themselves with an impermanent loss which is unavoidable in the DeFi market. Such are the pros and cons of DEX.
With this said, let’s make ourselves familiar with the list of the best Decentralized Exchange examples in the market so far:
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In this regard, there is also an evolutionary product prevailing DEX in many terms known as DEX aggregator. DEX aggregator offers almost the same services as DEX with much wider liquidity, more tokens, and even lower service fee to users. DEX aggregators achieve this possibility by combining service pools of various DEX together. Thus, there is no harm in choosing the service of DEX aggregator in all terms.
Some of the best DEX aggregators are listed below:
What is the Difference Between DEX and DeFi?
DeFi stands for Decentralized Finance, the direct opposite of Centralized Finance which is normally backed by intermediaries such as banks and financial institutions. It can be interpreted as the financial market without intermediaries. DEX is an entity whose role is mainly to support exchanges of crypto assets between crypto traders.
To clarify this, you can view DEX, being an exchange booth where you can swap your currency to other currencies in the Centralized Finance world. Rather than being in the same category, DEX is more like one of the subsets of DeFi.
How Do You Make Money on DEX?
There are primarily 2 ways to make money on DEX. First and foremost, crypto traders can make money by typical buying/selling of crypto assets on the aspect of arbitraging. A successful trade usually requires good timing and insight from traders.
Another way to make money on DEX is to become a liquidity provider. Generally providing liquidity to other crypto traders by submitting crypto-assets into the pool. This rewards the liquidity providers with a small share of the trading fee collected from transactions made with respective crypto assets.
Is It Safe to Trade Cryptocurrencies on DEX?
This is a very critical and delicate question and is quite hard to answer in a generic manner. In the blockchain landscape, please be aware that anyone can create a project or tokens, including creating fake versions of existing projects and tokens that claim to represent projects. By trading cryptocurrencies, it is strongly advised that users should do their own research (DYOR) and trade at their own risk. Thus, whether it is safe to trade cryptocurrencies on DEX depends on each person’s risk torrelence.
But in technical speaking, the Automated Market Maker (AMM) is designed to reduce human errors or the doubts of having intermediaries. Many traders using DEX also believe in the concept of Code is Law in order to create the market’s algorithmic governance. If it is agreed that the mathematical algorithm designed by the AMM is secured, we can say that trading on DEX is technically safe.
Is There a Future for Decentralized Exchanges?
The trend for Decentralized Exchange is currently booming and is proven to be the core activity of investing in DeFi. It’s very convenient and comfortable for users in the market. It’s actually the main driving force pushing the DeFi market forward at the moment. Therefore the DEXs will still be there providing you with the services you need. However, there is a better alternative for users namely DEX aggregator mentioned above giving better solutions to crypto traders.