Decentralization that gained momentum over the recent years (even during the past “crypto winter” time), along with the massive emergence and development of such digital era phenomena as Web3, AI, and the metaverse, catered to the rapid development of decentralized exchanges, DEX. In the course of this review, we endeavored to list their main features, functionalities, and their main participants – all that one needs to know about the “superexchanges of the future”.
Decentralized exchanges, or DEXs, were initially perceived as a kind of underground crypto-clubs where there was no room for a stranger. But the rise of DEX and IDOs was greatly backed by uncoincidentally strong momentum of the DeFi segment as a whole. Eventually, that increased the demand for such trading platforms so much that the voices of the skeptics became muted: the growth of their daily trading volumes quickly outpaced the ones of most other exchanges. Yes, their count numbers were still relatively low compared to the Big Ten CeFi crypto exchanges such as Binance and Coinbase, but their quick pace made many investors surprised and intrigued. What's important about DEXs is that they provide independence from a single regulator or even a self-regulatory oversight organization. But at the same time, they ensure the security and confidentiality of transactions and allow users to manage their crypto assets quite confidently and efficiently without the worry of a personal-freedom-restricting oversight.
In September 2023, a slight decline in the trading activity on decentralized exchanges (DEX) was recorded, with a registered volume of $30.22 billion. However, DEX activity has since seen a significant increase in October, surging by over 32% to $39.98 billion. The trend of increased momentum has continued into November, with the past week alone accounting for $15 billion in trades.
Based on recent data, decentralized exchange platforms have reported an increase in trading volume of $9.76 billion during October as compared to the previous month. The trading volume in October reached $39.98 billion, which was slightly higher than August's total of $39.52 billion. As for November, Uniswap's dominance in the market continues to be evident, with ~$9.1 billion out of the $15 billion traded, which accounts for 60% of the trading volume from November 1 to November 7, 2023. Over the same period, Pancakeswap recorded a turnover of $2.56 billion, while Curve Finance logged $732 million. Notably, the Ethereum blockchain accumulated 57.7% of all DEX trade activities.
As we previously mentioned, one of the main advantages of decentralized cryptocurrency exchanges is their security. Since they are independent of any central governments, they are considered less exposed to general hacking interests and any unwarranted leakage of funds. As a result, they are safer for storing cryptocurrencies than traditional exchanges.
In addition, decentralized exchanges give users more freedom to manage their assets. Users can manage their cryptocurrency wallets and conduct transactions without entrusting their funds to a third party.
Another advantage of decentralized exchanges is their anonymity. Users can conduct transactions without having to provide any personal information or identification documents.
Decentralized exchanges are also more efficient and faster because they operate entirely on blockchains, which are known to allow transactions to be conducted almost lightning-fast and without the risk of requesting additional routine, but time-consuming verifications — unlike traditional exchanges, where delays can occur due to such bureaucratic procedures.
However, decentralized exchanges have drawbacks — such as relatively low liquidity and, more often than not, high transaction fees. They can also be complicated for those unfamiliar with cryptocurrencies, and the interface may not be intuitive (what we call user-friendly).
Overall, decentralized cryptocurrency exchanges can be a great option for those looking for security and quick accessibility to their assets, but it requires more skill and understanding of cryptocurrencies and blockchain technology.
Before rushing to download a mobile application and go through the procedure of initializing the account of the decentralized exchange you like, it is recommended to thoroughly study its features, advantages, and disadvantages to make the most of it for your specific needs.
There are many other decentralized exchanges — such as IDEX, 0x, and Waves Dex — that offer secure and decentralized cryptocurrency trading. Here are the Top 5 best-decentralized cryptocurrency exchanges to date:
Uniswap is a well-known decentralized exchange that uses the Ethereum protocol. It allows users to trade cryptocurrencies without having to deposit funds with a third party; the downside of Uniswap is the relatively high transaction fees inherent in the Ethereum blockchain. Uniswap offers an array of innovative features and advantages, revolutionizing the traditional financial landscape. With its unique automated market maker (AMM) model, Uniswap allows users to trade tokens directly from their wallets, without the need for intermediaries.
One of the key advantages of Uniswap is its liquidity provision. As a decentralized exchange, it incentivizes users to provide liquidity by pooling their assets into smart contracts, ensuring a constant supply for trading. This approach eliminates the issues of order books, enabling users to easily execute trades at predictable prices.
Another notable feature of Uniswap is its permissionless nature. Anyone can list a token on the platform without seeking approval from centralized authorities. Isn’t it beautiful? This creates an open and inclusive environment for new projects and a friendly trusting environment while promoting innovation and fostering the growth of its unique decentralized ecosystem.
Furthermore, Uniswap promotes transparency and security. Smart contracts handle all the transactions, eliminating the risks associated with centralized custody of funds. Additionally, Uniswap's code is open-source, allowing for community audits and ensuring the trustworthiness of the platform.
Binance DEX is another popular decentralized exchange founded by Binance. Binance DEX has gained significant popularity in the cryptocurrency community due to its popularity, remarkable features, and advantages. One of its key highlights is the enhanced security it offers. Being decentralized, Binance DEX eliminates the need for a central authority, making it more resistant to hacking attempts and ensuring safe transactions for users.
In addition to security, Binance DEX also boasts impressive liquidity. It benefits from the vast user base of the Binance ecosystem, ensuring ample trading opportunities and minimizing slippage. With its advanced matching engine, Binance DEX provides fast and efficient order execution, enhancing the overall trading experience.
Moreover, Binance DEX has been offering a distinctly wide range of supported cryptocurrencies, giving users access to numerous trading pairs. Furthermore, the platform offers a user-friendly “recognizable” interface, making it easy for novice and experienced traders to navigate and execute trades seamlessly. The downside of Binance DEX is that it uses its network for transactions, which is less popular and studied than the Ethereum blockchain.
Kyber Network is a decentralized exchange that offers instant direct and credit transactions. With Kyber Network, users can make fast and effortless crypto-to-crypto-exchange transactions without the need for a broker or custodian. That still ensures that transactions are conducted securely and efficiently.
Another advantage of Kyber Network exchange is traditional for a top-tier DEX — namely, its wide range of supported tokens. It supports a diverse selection of cryptocurrencies, allowing users to easily access and trade different digital assets in one place. This improves liquidity and eliminates the need for multiple exchanges.
Furthermore, the Kyber Network exchange is designed to be user-friendly and intuitive. It offers a simple and streamlined interface, making it easy for both newcomers and experienced traders to navigate and execute transactions. Moreover, Kyber Network boasts low transaction fees, keeping overall maintenance and execution costs minimal for users. The downside of Kyber Network is that, like Binance DEX, it uses its tokens, making it difficult to exchange for other cryptocurrencies.
PancakeSwap is a decentralized exchange that operates on the Binance Smart Chain (BSC). It offers a wide range of features and advantages that make it a popular choice among a wide spectrum of cryptocurrency traders and individual crypto enthusiasts.
One of the key features of PancakeSwap is its ability to facilitate yield farming (we will seek a separate opportunity to cover yield farming in detail, so stay tuned), allowing users to earn passive income by providing liquidity to the platform. Users can stake their tokens and earn CAKE, the native token of PancakeSwap, as rewards. This creates a unique opportunity for investors to maximize their earnings while remaining committed to this particular DEX.
Another advantage of PancakeSwap is its low fees compared to other popular exchanges, which is typical for a top-tier DEX. As a decentralized exchange, PancakeSwap eliminates the need for intermediaries, thereby reducing transaction costs. This makes it a more affordable option for traders, especially those who execute frequent trades.
PancakeSwap also offers an extensive selection of tokens for trading through its decentralized automated market maker (AMM) mechanism. This allows users to easily “swap” between different cryptocurrencies without relying on centralized order books. The platform also supports a variety of features like token staking, lottery, and market prediction tools.
Another prominent player in this space was SushiSwap, born out of a fork from Uniswap. SushiSwap enticed traders with its unique token incentives and yield farming opportunities. It quickly captured the attention of those seeking higher returns and experimental DeFi projects.
One of the main standout aspects of SushiSwap is the governance privileges it offers. These privileges are granted to token holders and are distributed as liquidity rewards. Moreover, individuals who possess SUSHI tokens are also eligible to receive a portion of the fees that traders are charged by the protocol. This benefit can be viewed as a form of entitlement.
One of the key advantages of SushiSwap has been its ability to provide users with a significantly lower fee structure compared to traditional centralized exchanges. By removing intermediaries, SushiSwap enabled users to trade directly from their wallets, eliminating the need for costly crypto brokers.
Another notable feature was its innovative yield farming mechanism. SushiSwap allowed users to earn rewards by staking their tokens in liquidity pools. This means that anyone could become a liquidity provider and earn returns for their contributions, creating a more inclusive and profitable ecosystem.
Moreover, SushiSwap championed decentralization by transitioning from a centralized development model to the above-mentioned community-driven governance structure. This gave users the power to participate in decision-making processes and vote on various proposals, ensuring transparency and fair representation.
Furthermore, SushiSwap boasts a wide range of supported tokens, providing users with ample options for swapping, trading, and investing. This diverse marketplace allowed for greater flexibility and liquidity, making it a preferred choice for cryptocurrency enthusiasts.
The modern reality of 24/7 crypto trading in an extremely volatile environment is making life for physical participants increasingly difficult. Even though, the most popular trading convenience tools such as stop-, stop-limit orders, margin limit approaching alerts, and various conditional trading tasks are now commonplace in a wide variety of DEX trading platforms, only fully automated ones can offer a truly comfortable experience.
DefCafe has been aspiring to stay at the forefront of these innovations. The main DefCafe product is Fast Trading Terminal, which supports multichain — mostly, Binance Chain and Ethereum. Its features include:
- Market and limit orders, with support for traditional and trailing stop losses. Limit orders are created individually for the user and do not require a third participant (filler).
- Option to utilize a limit order to buy.
- Many built-in mechanisms of protection from scams, such as a contract scanner, protection from rug-pool, blacklist, etc., all orders are protected by their built-in protection tools from MEV bots, front-run, etc.
- Most settings are automated— such as AI gas, which chooses the optimal gas price based on the history of transactions and future forecasts, so that the transaction can be faster than an industry average, and cheaper by 10-15% than if using, for example, popular Metamask platform; automatic adjustment of order terms taking into account contract restrictions (slippage, order size, no-revert transitions without paying the price of gas in case of revert); our transactions are almost always successful — the terminal will try to execute the order, automatically adjusting it, taking into account the current market situation and all the nuances t
- Fully automatic “sniper” of new tokens. Selects all parameters for the user thanks to the built-in contract scanner. The user can select the maximum price at which he wants to buy a token. In case this price is higher than the desired price at the optimal moment, the purchase will be canceled without paying gas.
Overall, decentralized exchanges, despite our earlier comparison of them to the underground of crypto finance, represent the future of cryptocurrency trading as they offer a more secure and unmediated way of trading (P2P transactions are almost perfected in them). They allow users to obtain more control over their funds and conduct transactions without having to entrust their transfer to the supervision of any third party.