What is DEX?

DEX (Decentralized Exchange) is known for trying to provide alternatives by operating as a decentralized exchange compared to centralized exchanges. DEX (Decentralized Exchange) is also described as a peer-to-peer marketplace that connects cryptocurrency buyers and sellers.

Unlike centralized exchanges (CEX), decentralized platforms are not under supervision, in other words, when users trade on the DEX platform, they maintain control of their own private keys. In the absence of a central authority, DEXs use smart contracts that are self-executing under certain conditions and record every transaction on the blockchain. The protection of these transactions represents an accelerating segment of the digital asset market and leads to new financial products.

Traditional stock and price exchanges bring buyers and sellers together in one place, allowing investors to easily enter and exit positions at certain points by providing liquidity to the market. Higher liquidity increases the likelihood of having buyers or sellers on the other side of the trade who want to transact. While cryptocurrency exchanges, also known as centralized exchanges (CEX), facilitate the trading of blockchain-based digital assets, their platforms can be made centralized or decentralized. Centralized exchanges act as trusted intermediaries in transactions, often acting as custodians who can store and protect private keys and associated funds.

Leading centralized crypto exchanges facilitate every aspect of the digital asset trading experience, from security and fair market pricing to regulatory compliance, consumer protection, and access to the newest digital assets. In many centralized exchanges, fiat or cryptocurrency must be deposited into an exchange-held crypto wallet before trading. Money can also be transferred to a crypto wallet outside of the exchange wallet. You can also exchange crypto for fiat and withdraw money from bank accounts.

As of September 2020, while CEXs (Centralized Exchanges) accounted for approximately 95% of all crypto trading volume, decentralized exchanges (DEX) emerged as an alternative to CEX platforms offering peer-to-peer trading and access to the developing decentralized finance (DeFi) sector. Currently, there are more than thirty-five decentralized exchange options.

While DEX platforms represented only 0.11% of global trading volume in January 2019, this number rose to 6% as of August 2020. Monthly transaction volume on decentralized exchanges reached $20 billion as of October 2020. DEX platforms take a different approach to facilitating digital asset trading. Instead of using an intermediary to clear transactions, DEXs leverage the functionality of self-executing smart contracts. DEXs follow a non-custodial path where created private keys and cryptocurrency funds can be maintained. There is no counterparty risk problem for DEXs, in other words, there is no credit obligation risk and they do not follow Know Your Customer (KYC) or Anti-Money Laundering (AML) protocols.

Advantages of DEXs

Even in the early stages of developing decentralized crypto exchanges, they offer advantages affecting digital asset custody, diversity, transaction security, trading fees, and investor privacy.

Custody

DEXs are non-custodial, meaning sellers don't need to give up control of private keys to trade. Instead, externally held wallets interact with DEXs and trade autonomously through smart contracts. Centralized exchanges, on the other hand, assume a custodial role for funds by controlling private keys. This situation creates the necessity for individuals to give up private key control. With such a requirement, centralized exchanges provide assurance and protection.

Diversity

As of October 2020, there were over 7,400 cryptocurrencies in the market. CEXs exercise control over which cryptocurrencies they list, typically only listing those with sufficient trading activity, prevalence, and effective security standards to ensure profitability and regulatory compliance. Individuals can access many altcoins only through DEXs where peer-to-peer transactions can occur without high trading volumes. Through this access, a broader opportunity for participation in digital assets is provided and there is an increase in financial participation.

Trustless Transactions

In CEXs, every transaction is monitored and recorded by the exchange, which is a central authority. DEXs, on the other hand, execute transactions through smart contracts and record them on the blockchain, enabling trustless transactions. Since DEXs don't hold individuals' money, they are also less likely to be targeted by hackers.

Lower Fees

Decentralized exchanges operate through the use of self-executing smart contracts. DEXs use the same "gas" fee structure as the Ethereum blockchain they are built on. DEXs charge a low fee of around 0.3% for exchanges. While these fees fluctuate depending on network usage, they are much lower than costs incurred in centralized alternatives.

Privacy

Individuals trading using decentralized exchanges don't need to disclose their private keys. This is because wallets are held externally and the DEX is not responsible for funds. Also for this reason, individuals usually don't need to complete KYC (Know Your Customer) and AML (Anti-Money Laundering) procedures when using DEXs. While this is advantageous in terms of convenience, it can potentially create legal issues.

Disadvantages of DEXs

Disadvantages arising from decentralized exchange usage also create barriers to its widespread adoption. These deficiencies affect DEX's scalability, user experience, market liquidity, and capital mobility.

Scalability

Blockchain scalability depends on the number of transactions the network can process before reaching capacity. For example, while the Bitcoin network processes 4.6 Transactions Per Second (TPS), Ethereum reaches 15 TPS. Decentralized exchanges operate using smart contracts living on blockchain networks. Therefore, DEXs are bound by the limitations of their underlying network infrastructure.

User Experience

DEXs are currently in the early stages of development and can be difficult to use for individuals less familiar with decentralized blockchain technology. First, users need to be familiar with external wallet platforms to interact with a DEX. Then, they need to fund their wallets by transferring fiat or cryptocurrency. Finally, they need to connect this wallet to the DEX interface to perform trading operations. The deposit process for trading on the DEX platform is noticeably simpler compared to the CEX platform.

Liquidity

Since DEXs are still new in many ways and support various trading partners, market segregation has a negative effect on market liquidity. However, asset liquidity is increasing significantly with the growth of DeFi (Decentralized Finance).

On and Off Ramps

Current DEX technology does not facilitate the purchase of digital assets with fiat currencies like the US Dollar. In other words, fiat trading cannot be done or bank account money transfers cannot be realized. While stable coin technology has emerged to replicate the role of fiat currency in the DeFi (Decentralized Finance) ecosystem, the absence of fiat on and off ramps poses a barrier to entry for new users.

Exchanges of the Future

Although centralized exchanges still dominate crypto markets and serve the needs of daily crypto traders and investors, decentralized alternatives offer an interesting alternative. Through on-chain smart contracts, DEXs provide a trustless method to connect buyers and sellers and offer new fair participation and governance models for partners. Additionally, these platforms are still in the update phase, and to ensure future adoption, user experience will need to be further improved, infrastructure developed, improved scaling mechanisms implemented, and connections to centralized crypto and legacy financial institutions increased.

DEX Price Data

The current DEX coin market supply is 191,542.291 and does not have a maximum supply. DEX (DEX) is a cryptocurrency and operates on the Ethereum platform. DEX has a current supply ranging from 191,542,290.51 to 1,892,996,914 in the market. DEX's last known price is $0.00687311. It currently trades $23,397.25 in three active markets over the last 24 hours.