Decentralized exchanges are maybe the next big thing in cryptocurrency trading. In this article 6 popular platforms that are showing immense growth potential.
Decentralized exchanges: Introduction
A decade ago the first blockchain transaction was recorded on the so-called genesis block. Since then, crypto trading has evolved at an unprecedented rate, up to a point where it is globally recognized as a self-sufficient financial industry. Currently, Coinmarketcap suggests that there are over 300 crypto exchanges operating in the cryptocurrency markets. Also, a lot of these exchanges, more than 80%, are centralized or run by a central authority.
Centralized exchanges are the most common forms of exchanges in the crypto industry. Like the traditional stock exchanges, transactions are usually controlled and approved by a central authority.
The rise of decentralized exchanges
Since the start of the crypto markets, centralized exchanges thrived due to their high liquidity and massive trade volumes. However, history has shown that they are highly susceptible to hacks and frequent downtime. In fact, they are not too different from the traditional financial system which they were designed to disrupt.
The last few years have witnessed the emergence of a whole new and disruptive concept. Moreover, this concept is aimed at providing lasting solutions at which centralized exchanges can’t offer. As a result, more and more decentralized exchanges are popping up that are not run by a central authority. Instead, they are run by code only.
A decentralized exchange (DEX) is a type of cryptocurrency exchange uniquely designed to operate in a decentralized manner. In other words, it is devoid of any central authority and permits peer-to-peer transactions across its network. Unlike centralized exchanges where users are required to deposit their funds before performing any transaction, most decentralized exchanges work with smart contracts.
The benefits of a DEX
Basically smart contracts enable users to hold on to their funds. This way, decentralized exchanges save users the risk of losing their funds in a situation where the exchange gets hacked.
Furthermore, it’s not possible for whales or large investors to manipulate markets on decentralized exchanges. Also, wash trading or money laundering can’t be done. Finally, their servers are spread across the globe to ensure they provide a system free from frequent downtime and hack attacks.
Staking tokens provides liquidity for the markets
Decentralized exchanges also provide users with the opportunity to participate in staking through an incentivized proof-of-stake (PoS) consensus algorithm. Staking cryptocurrency helps in providing high liquidity for most of these exchanges which in turn allows users to earn rewards in the form of tokens.
Popular decentralized exchanges to trade tokens
This article will summarize the DEX-exchanges that are currently very popular among cryptocurrency investors.
Launched in November 2018, Uniswap provides a peer-to-peer network for the safe and convenient swapping of Ethereum and Erc-20 tokens. In particular, Uniswap was designed to run solely on the Ethereum blockchain and is being backed by two smart contracts.
In addition, they are called, the “factory” and “exchange” contract and make it virtually easy for an exchange to be created for the easy swapping of any ERC token on the chain. Uniswap protocol is permissionless which means that any ERC token can be listed on the platform easily.
Also, Uniswap relies directly on users’ funds to create liquidity. This way, users can participate in liquidity pools and then they get a portion of the transaction fees generated on the network based on the amount of liquidity they provide.
Uniswap has its maker and taker fee set at 0.30% per trade and in place of a withdrawal fee, they charge a network fee for every transaction you make. This fee varies between 15-20% of the global industry average BTC-withdrawal fee.
No fiat deposits at the moment, cryptocurrencies only
Currently, Uniswap doesn’t accept fiat deposits, which means it might pose great a challenge for new crypto investors who intend to use this platform. Instead, if you want to use the services of this exchange you need to own some cryptocurrency first, this is very important!
For future growth, however, I think it’s very important if the functionality is added that accepts credit card funding or bank deposits.
Uniswap market information
|Market volume (24hrs)||$4.8 million|
|Market volume (7 days)||$37 million|
|Market volume of 2019||$370 million|
|Number of market pairs||68|
Curve.fi is a decentralized trading platform with its main focus on stablecoins. In contrary to Uniswap it’s not possible to trade other ERC-20 tokens besides stablecoins. Good examples of stablecoins are(USDC, DAI, USDT, TUSD, and BUSD). In other words, this decentralized trading platform offers the possibility to swap stablecoins among each other. The difference between stablecoins and other cryptocurrency tokens is that they are tight to the dollar which makes them less volatile. Why is Curve only offering this service?
Curve is for stablecoins only
First and foremost by offering stablecoins only this platform is able to offer traders extremely low slippage. Also, liquidity providers can enjoy little-to-no impertinent loss. Besides, by offering stablecoins only they are able to let you trade between these pairs very fast which improves user experience. Finally, by primarily focusing on stablecoins they are able to offer to trade against the most competitive prices in the market where actual trading fees are set to 0.04%.
Curve market information
|Market volume (24hrs)||$5.5 million|
|Market volume (7 days)||$40 million|
|Market volume of 2020||$450 million|
|Number of market pairs||50|
IDEX is an Ethereum powered decentralized exchange also fully equipped with smart contracts. They are providing a safe and secure trading environment where users can perform peer-to-peer transactions with Ethereum (ERC 20) tokens.
According to IDEX, they are the only existing Ethereum decentralized exchange with real-time trading and high transaction throughput. Interestingly, IDEX provides the full package by ensuring top-notch security and transparency by being decentralized at default. Also, it provides a decent user interface similar to that of a centralized exchange.
Private keys of users are fully encrypted
In order to ensure a high level of security on the network, users’ private keys are fully encrypted. This ensures that they get automatically erased from the device memory immediately a user signs out of his account. Also, IDEX does not have access to users’ funds on the exchange. Instead, a user chooses to use their in-house wallet which is highly recommended.
In the first place, there are no deposit or withdrawal fees on IDEX and their trading fees are quite competitive. For instance, IDEX charges 0.2% as takers fee and a 0.1% fee for market makers. Fiat deposits are not accepted, so the only way to deposit funds into your account is by cryptocurrency transfer.
IDEX market information
|Market volume (24hrs)||$2.99 million|
|Market volume (7 days)||$27 million|
|Market volume of 2019||$853 million|
|Number of market pairs||383|
Kyber Network (KNC)
First of all, the Kyber Network is a decentralized exchange platform based on the Ethereum blockchain. Launched in May 2017, this unique project was designed to disrupt the way a centralized exchange works. Basically, by providing a vast financial ecosystem that satisfies a wide range of use cases.
In particular, the Kyber Network does not only serve financial services in the form of swapping tokens and contracts. Also, the network provides a flexible payment channel through which vendors can accept payments on their various e-commerce platforms. For example, DApps running on the network allow vendors to utilize their platform and services directly with other tokens.
Besides, Kyber operates with a decentralized liquidity protocol(KNC) that allows anyone to contribute their token assets to its central liquidity pool. In addition, they can earn a percentage of every transaction being made. Moreover, these tokens can be used across any platform that runs on the Kyber network. One big advantage the Kyber network provides over its competitors is its zero-trading fee policy. The only fee involved in any trade is the normal gas fee which is required generally across the Ethereum blockchain.
Currently no fiat currency deposits are accepted on the Kyber network.
Kyber Network market information
|Market volume (24hrs)||$2.99 million|
|Market volume (7 days)||$22 million|
|Market volume of 2019||$388 million|
|Number of market pairs||64|
In general, 0x is an open-source exchange protocol(ZRX) equipped to enable the decentralized trading of tokens on the Ethereum blockchain. Also, this open protocol works as a plugin that can be easily integrated into any DApp. Additionally, by enabling users to conveniently trade the DApps’ native token for any other ERC20 token.
The 0x protocol provides a mechanism that allows users to book and place orders off-chain. In addition, through a relayer which acts as a communication tool between makers and takers. Furthermore, the exchange continues to execute the trade between both parties on-chain. In particular, after every condition on the smart contracts are met.
Notably, ZRX is the official token of the 0x project. In order to provide deep liquidity on the network, 0x provides market makers with the opportunity to earn liquidity rewards. Especially when they stake ZRX for a specific period. Also, market makers that do not have enough ZRX can form staking pools. In addition, ZRX token holders can delegate their tokens in order to receive an allocation of liquidity rewards.
0x market information
|Market volume (24hrs)||$4.4 million|
|Market volume (7 days)||$23 million|
|Market volume of 2019||$228 million|
|Number of market pairs||182|
Bancor Network is a decentralized exchange platform based in Zug, Switzerland. Moreover, unlike the other decentralized exchanges, Bancor leverages a unique exchange mechanism. In particular, it enables the easy exchange of any two tokens available on the network without having to match any two parties. As a result, transactions on the Bancor network are quite convenient and secure.
Furthermore, Bancor protocol has a built-in pricing and liquidity mechanism on its token which acts with respect to any coin on the platform. Users can facilitate easy liquidity on the network by depositing the platform’s traditional token, BNT into a Bancor liquidity pool. In addition, by holding BNT in a Bancor pool gives you entitlement to a share of its staking rewards.
Interestingly, no transaction fee is charged on the Bancor network. Since no assets are ever deposited into the network, no withdrawals are done which means there are no withdrawal fees. Also, fiat currency funding is accepted on the Bancor network through a payment service channel called Simplex. Finally, funding through this payment channel will incur a fee of 3.5% of your trading volume.
Bancor market information
|Market volume (24hrs)||$2.3 million|
|Market volume (7 days)||$9.4 million|
|Market volume of 2019||Unknown|
|Number of market pairs||91|
Regardless of the financial prowess and dominance that centralized exchanges are currently showing, recent developments are suggesting that decentralized exchanges are here to stay. As a crypto investor, it is wise to always prioritize security and profitability over anything else as does decentralized exchanges.
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