Decentralized Cryptocurrency Exchanges
This article defines decentralized cryptocurrency exchanges (DEXs), states the types of activities that can occur on DEXs, and concludes with a list of some DEXs.
Definition of decentralized cryptocurrency exchanges
In the cryptocurrency world, “decentralize” means that “cryptocurrency operations (buying, selling, or trading) are not being monitored or controlled by a middleman or third-party”.
Decentralized cryptocurrency exchanges are online cryptocurrency platforms that don’t use third-party providers before trades occur between cryptocurrency buyers and sellers.
Unlike CEXs, DEX platforms don’t use middlemen and are known for being hack-proof and maintaining anonymity. However, because DEXs are somewhat slow when compared with CEXs, under certain circumstances it’s more difficult to use DEXs to exploit cryptocurrency volatility and earn more money or cryptos.
On DEX platforms, cryptocurrency buyers and sellers interact with one another, and transactions or trades occur directly between them in a “peer-to-peer” manner.
Although many fans of DEXs argue that it’s better to use DEXs for trading (buying and selling) of cryptocurrencies because they are decentralized and allow peer-to-peer interaction without middlemen, it’s important to point out that as at the time of writing, DEXs had their own problems which are discussed a bit later in this article.
Possible activities on decentralized cryptocurrency exchanges
1. People/clients can save their cryptocurrencies in escrows that are centralized by the DEXs. Escrows exist on DEX platforms to hold funds for transactions which can take as many as five days before they are cleared.
2. Clients can buy cryptocurrencies directly from DEX market participants, and also sell cryptocurrencies directly to them without using intermediaries.
3. Generally, clients can make cryptocurrency deals on DEXs through the use of “smart contracts” and “atomic swaps”, instead of middlemen or third parties. Smart contracts are codes or programs that ensure certain legal actions or events take place in accordance with agreed terms between buyers and sellers. Atomic swaps consist of automated smart contract technology which makes it possible for one cryptocurrency to be exchanged or traded for another without the use of middlemen or centralized intermediaries.
Issues with decentralized cryptocurrency exchanges
Although it’s more difficult for hackers to hack clients’ accounts on DEXs, there is a high possibility for clients to lose their money if they forget their account log-in details.
Decentralized cryptocurrency exchanges suffer from the impact of low liquidity, meaning that it’s more difficult to buy or sell cryptocurrencies on DEXs.
The reason for this is because DEXs are less popular than CEXs; as a result, it’s difficult for clients—who want to buy or sell their cryptocurrencies—to find and be matched with other clients—who want to sell or buy cryptocurrencies.
Unfortunately, the liquidity in DEXs will likely continue to remain low as long as DEXs are less popular than CEXs.
Another issue with DEX platforms is that they don’t have services that can make it possible for clients to deposit and withdraw fiat currencies like dollars, pounds, and euros.
Moreover, DEXs can be sluggish and expensive, and when clients want to transfer cryptocurrencies and cancel orders, they would have to pay commissions or fees.
Examples of decentralized cryptocurrency exchanges
1. Bisq: https://www.bisq.network/
2. BitShares: https://wallet.bitshares.org/
3. Stellar DEX (SDEX): https://www.stellar.org/
4. Waves DEX: https://dex.wavesplatform.com/
6. DexGuru: https://dex.guru/
7. AirSwap: https://www.airswap.io/
8. Atomex: https://atomex.me/