Pros and Cons of Decentralized Exchanges
Decentralized Exchange (DEX) Advantages
Custody
Users of decentralized exchanges hold custody of their assets in their wallets. It Protects them from events that may affect centralized crypto exchanges, such as bankruptcy, hacking, and fraud, as well as other factors which may lead a Business to fail.
Preventing market manipulation
Decentralized exchanges, such as LocalBitcoins.com, are a safer alternative.
Since they have full authority to determine which tokens can be listed on the exchange, they have the potential to influence the financial market in unseen ways.
A decentralized exchange allows its users to exchange their tokens freely with each other while being transparent and accessible to everyone on the blockchain.
As the crypto market evolves, the focus of many projects is shifting from custodial to decentralized exchanges.
It depends on which exchange is used, but most centralized exchanges operate as escrow accounts for cryptocurrency.
Decentralized exchanges do not act as custodians; they only make it possible for two parties to trade. Smart contracts are what allow them to do so..
Less censorship
One of the most interesting trends in cryptocurrency right now is the push towards censorship resistance. While crypto-based censorship resistance is still new, and the technology isn’t ready for mainstream adoption, many crypto projects are looking to take advantage of this new platform and create more trust in the community. They’re starting to experiment with ways to keep malicious actors from manipulating transactions and creating fake coins. They’re building tools to help people monitor the supply chain and ensure that their funds aren’t stolen.
As the regulatory environment for cryptocurrencies gets more clear, the amount of censorship in crypto is shrinking. In general, the market is a better regulator than any state. If the technology allows it to scale efficiently and effectively, it will eventually win out in the market.
Security
Decentralized exchanges allow people to trade directly with each other without relying on a central authority. These systems eliminate counterparty risk. Counterparty risk is the possibility that you will end up paying a third party, like an exchange, if your counterparties default on their end of the deal. When many potential parties are involved, counterparty risk can become a big problem. With decentralized exchanges, only two people must come together to exchange something. If one person defaults, the other does not lose anything and will never need to give up a single penny.
Diversity
The strategy that makes the decentralized exchange work well for the community is to offer diversity in the kind of trading pairs offered. For instance, if you’re selling a widget, you might consider offering bitcoin, Ether, and some other cryptocurrency instead of just bitcoins. Doing this gives you options and provides new and interesting ways for people to trade with each other.
No Know-Your-Customer (KYC) Proccess
On decentralized exchanges, KYC is done automatically by the exchange itself, and only those who complete it can use it. For decentralized exchanges, KYC is typically performed on-chain, meaning all the information submitted during KYC is stored in the blockchain. Many exchanges require users to provide personal information during KYC, like full names and email. Users must provide KYC to access the exchange platform on centralized exchanges.
Decentralized Exchange (DEX) Disadvantages
Complexity
It’s a new type of decentralized marketplace, a new type of crypto asset, and a new type of trading tool. It’s also worth noting that a DEX is not a wallet and doesn’t allow you to send crypto to someone. It’s a place where you can trade between crypto assets.
That’s what most people feel when asked what they think about bitcoin. That’s understandable because most people aren’t familiar with the technology behind the decentralized exchange. Decentralized exchanges (or DEXs) are a peer-to-peer protocol for trading cryptocurrencies without intermediaries like exchanges, brokers, or custodians. Instead, users connect to other users in a peer-to-peer network, trading tokens back and forth without relying on a central authority.
Lack of fiat payments
DEXs are best for investors who want to switch from one digital asset to another and are not well suited for someone who wants to buy or sell digital assets with fiat currency. It makes them more difficult for users that don’t hold cryptocurrencies.
While some blockchain projects may start their cryptocurrency, they might not want to use cryptocurrencies if they don’t feel comfortable in the cryptocurrency market. Also, the development of decentralized exchanges can cause many problems in the financial world due to regulatory issues.
Liquidity Issues
One major drawback is that if the DEX is hacked, You may steal all the user’s funds. Users can’t store their tokens on the platform since it’s a decentralized exchange. Instead, they need to use their noncustodial wallet. Users have to pay gas fees every time they place an order because they lose money if they make a mistake. When trading volumes are low, it can be not easy to find buyers and sellers on a decentralized exchange.
Trade failures
There is no denying that they also carry the risk of failure. In the case of EtherDelta, a decentralized exchange platform that experienced a hack attack in June 2016, the exchange suffered a loss of over $30 million worth of Ether. To protect against such risks, the industry must continue developing better security measures and improving the quality of decentralized exchanges.
Expensive cancellations
DEXs use “automated market maker” protocols. One common approach is the “constant product” mechanism, which sets prices offered as a function of the ratio of the DEX’s total reserves of each of the assets involved. When any asset becomes scarce, it becomes extremely expensive.
Order Type Limitations
Order type limitations in decentralized exchanges mean there are few choices for buyers and sellers. The trading fee can limit them. There are usually no order fees (which means all trades are free) for some exchanges and others charge a transaction fee based on the trade size (smaller ones may cost more). Some decentralized exchanges have no limits on the number of orders per day and how many orders can be placed simultaneously (so long as you’re not asking too many people to send money to you).
Why should you consider a Decentralized Exchange?
Here are a few reasons why people might consider using a Decentralized Exchange (DEX):
- Security: DEXs are decentralized, meaning they operate on a network of computers and do not have a central point of control. This reduces the risk of hacking, as there is no single point of failure.
- Privacy: DEXs allow users to trade anonymously and do not require the personal information to be shared with a centralized entity.
- Control: DEXs allow users to control their own assets and private keys, eliminating the need to trust a centralized entity with their assets.
- Censorship resistance: DEXs resist censorship and government interference, as they operate on a decentralized network.
- Lower fees: Due to the absence of the administrative expenses associated with maintaining a centralized operation, DEXs often charge cheaper fees than centralized exchanges.
- Accessibility: Anyone with an internet connection can use DEXs, enabling trading worldwide.
- Innovation: DEXs allow for the developing new and innovative trading instruments and protocols, as they are open-source and customizable.
What are the best Decentralized Exchanges?
There are currently thousands of decentralized exchanges available to the public. These exchanges allow users to trade on multiple blockchains without needing a trusted third party.
If you’re interested, It is recommended to use Coingecko to look at the current top Decentralized Exchanges ranked by 24/h Trading Volume.
Our top 8 Picks of the Best DEX’s out there.
- Pancakeswap
- Uniswap
- sushiswap
- Dodo
- Osmosis
- Balancer
- Shibaswap
- Trader Joe
- Pancakeswap Exchange
PancakeSwap is a marketplace where people swap their pancakes. The exchange is based on a “flip the pancake” principle, which means that a customer pays for the value he gets, and the seller pays.
What Blockchain Network is Pancakeswap built on?
PancakeSwap is built on the the BNB Chain (previously BSC and Binance Chain) , which makes it compatible with most ERC20 tokens, such as Ether, Bitcoin, and others. Because of its ease of use, it’s often used for small transactions where speed, security, and cost aren’t as important.
What is Pancakeswaps native token?
PancakeSwap’s native token is called PAN. PAN is used to make transactions within the PancakeSwap ecosystem. It is a cryptocurrency based on the Ethereum platform.
Pancakeswaps exchange Pros and Cons
Liquidity Aggregation with No Middle-Man Leveraging smart contract functionality in a way that allows us to pay less per trade Decentralized, autonomous community with no centralized authority You can make perpetual contracts for trading Withdrawals and deposits via web3 wallet and hardware wallets Provide a unique service with very low fees compared to traditional exchanges, yet still provides enough liquidity to compete with other decentralized exchanges.
Uniswap Exchange
Uniswap is a cryptocurrency exchange that uses a decentralized network protocol. Uniswap Protocol is the company that developed the Uniswap protocol, and it was the first to introduce token swapping on the Ethereum blockchain. Automated transactions between digital currencies and tokens on the Ethereum blockchain are accomplished through smart contracts.
What Blockchain Network is Uniswap Exchange built on?
Uniswap is also the exchange name that originally built the Uniswap protocol. The protocol facilitates automated transactions between cryptocurrency tokens on the Ethereum blockchain through smart contracts.
What is Uniswap Exchange native token?
Uniswap exchange native token (UNI) is a utility token on the Uniswap protocol, which allows users to trade crypto assets on the Uniswap decentralized exchange. UNIs represent a fractional amount of a specified asset.
Uniswap Exchange pros and cons
Swapsmart ERC-20 tokens. User-friendly design. Earn crypto with liquidity mining. No registration is required. Crypto wallet support. Doesn’t accept fiat money. Gas fees. Risk of impermanent loss. No KYC.
Sushiswap Exchange
SushiSwap is a decentralized exchange (DEX) based on the Ethereum blockchain. Exchange of blockchain-based liquidity provider tokens
What Blockchain Network is Sushiswap Exchange built on?
SushiSwap is a copy of Uniswap, the top decentralized exchange that operates on the Ethereum blockchain.
What is Sushiswap Exchange native token?
SushiSwap native token is called $SUSHI which can be staked on the platform to earn an additional yield.
Sushiswap Exchange Pros and Cons
The platform’s ‘Sushi bar’ theme is easy to navigate, easy for new users to understand, and doesn’t look like any other cryptocurrency trading platform. Users maintain ownership of their assets and can trade whenever they want.
It would help if you got your hands on the new cryptocurrency that will take over the world. It’s called ETH and is already the #1 coin by market cap.
Dodo Exchange
DODO is a decentralized exchange that enables anyone to trade almost anything they want. One token is a single trade with only one direction of flow. One token may help stabilize the markets but doesn’t reduce impermanent losses.
What Blockchain Network is Dodo Exchange built on?
DEX is a decentralized exchange that uses the Proactive Market Maker (PMM) algorithm built on Ethereum and Binance Smart Chain (BSC).
What is Dodo Exchange native token?
DODO is an innovative decentralized trading platform that relies on its native DODO token. It provides fast and secure on-chain liquidity for Web 3 Assets and is built on Ethereum’s smart contract platform.
Dodo Exchange Pros and Con
First, let’s talk about the pros. The Dodo Exchange has a built-in staking mechanism that allows users to earn rewards for participating in the platform. Additionally, the platform is user-friendly and easy to use, even for those unfamiliar with cryptocurrency trading.
Now, let’s talk about some of the cons. One downside is that there are currently only a limited number of assets on the Dodo Exchange. It may limit its appeal to some investors. Additionally, as with any new platform, there is always a risk that it may not gain widespread adoption or be able to compete with existing exchanges.
Osmosis Exchange
Osmosis is a DEX protocol, meaning it uses smart contracts to determine the price of digital assets, to create liquidity via a peer-to-peer (P2P) methodology, and to trade between users.
This approach to an exchange platform is known as an AMM, and it allows the pricing of crypto assets in liquidity pools.
What Blockchain Network is Osmosis Exchange built on?
Built on the Cosmos blockchain, Osmosis purports to be an advanced automated market maker (AMM) protocol. Osmosis is built on the Ethereum platform and uses the ERC20 protocol; it is the first utility token. The network focuses on customizable AMMs, including token swaps, liquidity pool staking and governance.
What is Osmosis Exchange native token?
Osmosis is an interchain layer-1 automated market maker (AMM) decentralized exchange (DEX) on the Cosmos blockchain. Osmosis is the native governance and utility token.
Osmosis Exchange Pro and Cons
One big pro is that the platform offers a staking/earn mechanism, which can be a great way to earn some extra income. However, one potential con is that the fees associated with using the platform can be quite high.
Balancer Exchange
On the Cosmos blockchain, Osmosis is an automated market maker protocol designed to be more robust than traditional markets. The network focuses on customizable AMMs, including token swaps, liquidity pools, and governance.
What Blockchain Network is Balancer Exchange built on?
The BalancerBalancer is a decentralized exchange built on the Ethereum blockchain. Open Ethereum 2.0 is an open, accessible alternative to centralized exchanges. Anyone can trade Ether and ERC-20 assets without trusting the centralized exchange.
What is Balancer Exchange native token?
The BalancerBalancer is a decentralized finance protocol that operates through automated markets. They are called automated markets because they determine asset supply and demand based on mathematical formulas.
Bal is its native token.
Pros and Cons of Balancer Exchange
The best market-maker protocol is the Balancer protocol, which is fully decentralized. Anyone can create liquidity on any particular token; reduced gas fees, custom AMMs, and balancer multi-asset pools allow for more diversification. Balancer’s protocol has been used in over 25% of all ERC20 tokens on the mainnet.
It will be useful for anyone who wants to use or add other wallets to the DAI ecosystem.
Shibaswap Exchange
ShibaSwap is a native decentralized exchange (DEX) of the Shiba Inu coin.
It is the Shiba Inu meme coin project. Shiba Inu is a Japanese dog breed mascot for the Shiba Inu coin project.
What Blockchain Network is Shibaswap Exchange built on?
The first 10,000 Shiba Inu-generated NFTs are available on the Ethereum network.
What is Shibaswap Exchange native token?
The ship is the main token of the Shiba Inu ecosystem. It’s the most popular meme coin in the cryptocurrency space.
Shibaswap Exchange Pros and Cons
While you may have some advantages over other exchanges, there are still a lot of cons you should consider before deciding whether to start an exchange.
Shiba Inu. Shibarium is expected to launch its layer-2 blockchain this year.
Unlike Dogecoin, the Shibas are a cryptocurrency built on the Ethereum mainnet.
Shiba Collectible Card Game. Gaming veteran William Volk is designing a card game based on Shiba Inu.
When it comes to creating innovative, successful products, decentralization seems to be a trend.
If you don’t explain, you can’t prove it. A lack of explanation can lead to conclusions of dubious tokenomics.
Trader Joe Exchange
Trader Joe’s is a decentralized exchange built on the Avalanche Network. Defi is a term that refers to the use of blockchain technology for decentralized financial applications.
What Blockchain Network is Trader Joe’s Exchange built on?
Trader Joe’s is an all-in-one decentralized app built on the Avalanche blockchain.
Trader Joe’s is an online marketplace where you can swap, borrow, lend, stake, or invest in other members’ crypto assets.
Stakers can earn additional rewards for staking their LP (Liquidity Provider) tokens.
What is Trader Joe’s Exchange native token?
The native token of Trader Joe’s is the $JOE token. TVL – refers to the total funds locked in a decentralized exchange.
Pros and Cons of Trader Joe’s Exchange
You have some pros and cons to the Trader Joe’s Exchange. Before you decide to use it, make sure you know them. The exchange is great because you can make extra money if you’re willing to put your money in the system. Moreover, the platform is relatively easy to use and understand, even for beginners.