A decentralized exchange is a platform for conducting financial transactions directly and without intermediaries. In a decentralized exchange, no one has access to users’ assets, and transactions take place without the intervention of centralized organizations.
Exchanges play a vital role in the digital currency market and are known as synonymous with these markets. But the most popular exchanges we know are highly concentrated, despite the decentralized nature of digital currencies. Centralized trading systems can gain full access to users’ assets, interfere with the trading process, and block any user account they wish. The only possible solution to these problems is decentralized exchanges. Over the past few months, the development and creation of decentralized exchanges has flourished and we are witnessing the emergence of a large number of them. In this article, we will first explain the concept of decentralized exchange and its various aspects, and then you will get acquainted with the top 8 decentralized exchange offices.
What is a decentralized exchange?
Decentralized exchange, or DEX, is a platform for decentralized trading, using blockchain and smart contracts to eliminate intermediaries. With a decentralized exchange, users can trade from within their own wallets without having to deposit digital currencies into the exchange wallets.
When it comes to buying and selling digital currencies, minds go to exchanges like Bainance and Coin Bass, and this is not without reason. Their ease of use and popularity have made fewer people feel the need for other exchanges. But the decentralized nature of digital currencies contrasts with the way these exchanges work.
Hacking and theft, as well as the possibility of assets being blocked, are the main risks that threaten the assets of traders in a centralized exchange. But in a reputable decentralized exchange that has perfect coding, these risks no longer exist. In these exchanges, assets are withdrawn directly from the trader’s wallet and no third party will manage the currencies.
You do not need to enter personal and sensitive information to operate in decentralized exchanges, and you can use the services of a DEX just by connecting a wallet.
Of course, due to the technical problems that sometimes occur for decentralized exchanges, not supporting all digital currencies, as well as the issue of blockchain scalability (transaction slowness), more than 90% of digital currency transactions are still done on centralized exchanges. They do not trust decentralized exchanges. However, in 2020, we saw a significant increase in the trading volume of these exchanges, and there is great hope for the future of these exchanges.
How does a decentralized exchange work?
Decentralized exchanges are built on free-standing blockchains that have the ability to execute smart contracts. Ethereum is currently the largest host of decentralized exchanges.
To understand how decentralized exchange works, you must first get acquainted with the concept of smart contract. An intelligent contract is software that executes one or more specific commands under certain circumstances. This agreement will be implemented on the Blockchain and it will be impossible to prevent its implementation.
The main feature of a smart contract is its definitive execution. In fact, what makes the difference between a regular contract and a smart contract is that in a smart contract, no one (even the manufacturer) can prevent the contract from being executed, so we do not need to rely on centralized intermediaries to execute it.
Therefore, when a smart contract is executed on a free Blockchain such as Ethereum, it can no longer be stopped and no one can stop it. With smart contracts, you can create programs and projects that will continue to work forever without any intermediaries and disability. These programs are also called Dapp programs.
Apart from the technical details, the following process is performed in a decentralized exchange to perform a transaction:
1. The trader connects his wallet to an exchange.
۲. Registers your buy / sell order.
3. Other buyers / sellers will register the order according to the first trader’s order.
4. Assets are entered into the smart contract, exchanged in the smart contract and the amount is deposited in the wallet of the buyer and seller.
In some decentralized exchanges, a pool of liquidity is created using smart contracts, so that participants can allocate their assets to the exchange so that the exchange can meet the needs of traders with those assets. In this way, the participants also make a good profit.
Another type of decentralized exchange, called Atomic Swap, focuses on cross-chain transactions (such as Bitcoin to Ethereum) that are not possible in conventional decentralized exchanges. Decentralized exchange within the wallet Atomic Wallet There, it works by atomic swap method.
Disadvantages and risks of decentralized exchange
First of all, it should be said that these exchanges do not use trust services and the ownership of the assets is the responsibility of the user. Therefore, any mistake in trading and transferring currencies is irreparable and irreversible.
Another disadvantage that can be mentioned for decentralized exchanges is their low volume of transactions compared to centralized exchanges. The low volume of transactions compared to exchanges such as Bainance and sometimes the increase in costs have led to fewer investors working with these exchanges.
Decentralized exchanges are completely open source and transparent, but in the case of new exchanges, exchange codes may sometimes have technical or security problems. Also, although decentralized exchanges should not have access to assets, some of them may have a code to block digital currencies to prevent withdrawals if there are suspected violations.
One of the main problems of decentralized exchanges is the scalability (speed and transaction fee) of the Blockchain. In most of these exchanges, the user has to make a transaction on a network such as Ethereum for each transaction, which requires a fee. Therefore, if the network is busy, you will not experience a good sense of working with a decentralized exchange.
Another major problem with decentralized exchanges today is that they do not support all digital currencies. For example, at present most decentralized exchanges are active on the Ethereum and only support Ethereum conversion and Ethereum-based tokens (ERC-20). In these exchanges, for example, you can not trade currencies such as Tezos. Of course, some decentralized exchanges are trying to solve this problem by supporting several Blockchainks.
Low trading facilities are another disadvantage of decentralized exchanges. In addition, the transaction matching process is slower than the centralized samples, and this can lead to a not-so-good user experience.
Introduction of decentralized exchange
Here are 8 of the best decentralized exchanges in 2020:
All responsibility for using the introduced exchanges lies with the user.
Kyberswap can be considered one of the best new generation exchanges in digital currency trading platforms that operates in a decentralized and peer-to-peer manner. The exchange operates on the Ethereum Blockchain and is one of the platforms that has also been active on the Ropsten test network.
In this exchange, smart contracts are used in order to facilitate and facilitate exchanges. Another positive point about this decentralized exchange is the use of dynamic reserves, which allows the network to provide its services to users cheaper by providing sufficient liquidity.
The project is developed in Singapore and has a special digital currency called “KNC”. Cyberwash Exchange is available to users in web and mobile versions.
Uniswap is based on the Ethereum Blockchainchain, and with just a few simple steps you can exchange your Ethereum and ERC-20 tokens with smart contracts.
The fee in this exchange is 0.3%, which will be paid in the form of Ethereum and ERC-20 tokens.
One Inch can be considered a service consisting of several decentralized exchanges. In fact, one-inch exchanges are several decentralized platforms. It is possible to register limited orders (Limit Order) in this exchange and the variety of available tokens is also acceptable. When you place an order on the platform, your order will be placed in the order book of several decentralized exchanges.
Because one-inch is a platform with several different exchanges, transaction fees are calculated based on the criteria of the exchanges in question.
Bisq is one of the decentralized Bitcoin exchanges that allows transactions of this digital currency with common currencies (Fiat). You do not need to authenticate and provide personal information to use this exchange. Having another open source software for PC is another advantage of Biscuit.
The use of Tor, processing on the user’s computer and personal wallets has left no central point in the operations related to this exchange. The downside of this exchange is its low speed, which is created by the implementation of security policies and privacy.
Bisco reports for Monroe digital currency are reportedly trading at $ 119,000 a day. Bitcoin $ 15,000 and less than $ 5,000 ether are traded daily in this exchange.
Despite the very low volume of transactions and low speed, it can be said that Biscuit is one of the most decentralized exchanges in the world.
Bancor Exchange uses a unique model in its mechanism. At this exchange, users can trade their ERC-20 tokens with Smart tokens, the main token of the Bancor network.
Holders of these tokens, on the other hand, can trade their smartphones with other ERC-20-based tokens. Through smart contracts, it is possible to exchange any ERC-20 token on the platform.
Bancor’s main goal is to increase the liquidity of tokens that have little market value. It is worth noting that the Bancor fee is calculated as a fee in the Ethereum Network (GAS).
Balancer introduces itself as a non-trustworthy investment portfolio management platform and liquidity provider. By connecting your wallet to this exchange, you can trade Ethereum and a wide range of Ethereum-based tokens.
The main network of Balancer was launched in late March 2020 (April 99) and the daily trading volume of this exchange is now more than $ 21 million.
The exchange (IDEX), known as the Ethereum Decentralized Assets Exchange, is one of the newest decentralized exchanges that has attracted a lot of attention since its inception.
This exchange has many similarities with EtherDelta exchange and is in fact a kind of peer-to-peer platform for exchanging ERC20 tokens. It is also possible to deposit currencies in this exchange, a feature that we have seen in less decentralized exchanges like it.
The features and structure of IDX are very similar to regular exchanges.
Decentralized Bainance Exchange
Bainance launched its decentralized exchange in February 2019 (December 97). The low fees of this exchange can be considered as the difference between it and other competitors. Proper user interface and high security are other features of this decentralized exchange.
Remember that Bainance has officially announced that users of sanctioned countries, including Iran, will not be able to access the services of this exchange. However, some Iranian users have reported that they have succeeded in doing business in this exchange by changing their IP. American users are also not allowed to trade in this exchange.
Bainance Decentralized Exchange receives a small fee of 0.1% for transactions made on this platform. If this fee is paid using BinanceQueen digital currency, this number is 0.04%.