Decentralized exchanges (DEX): what are they,
A decentralized exchange or DEX It is a platform that has been frequently used to connect blockchain vídeo games; and thus acquire the tokens with which you start in the game.
Even so, these have utilities and qualities that go beyond what is mentioned.
However, many escoge not to use them due to how complex it is to understand them during the first sessions of use.
For this reason we bring a complete explanation about everything you need to know about a decentralized exchange; how they work, advantages, disadvantages, types, among others.
Related: Best decentralized exchanges
What is a decentralized exchange?
The decentralized exchanges or DEXs They are basically a centralized exchange, with the difference that it runs on the smart contracts (smart contracts) of a certain blockchain.
Therefore, the same functions that perro be found in a centralized exchange platform cánido be found in a DEX; although there will certainly be some limitation.
It should be noted that it is given the name of decentralized for the fácil fact that it is not managed by a certain figure or entity.
This causes the security levels in them to be higher, since you will not have to register to start using them; it will be enough to have them connected to one of your wallets.
Therefore, DEXs offer the most sought after in the crypto world: anonymity and security, since they are not regulated and do not keep a usuario registry either.
In addition, at all times the investor perro keep their tokens in custody.
How decentralized exchanges (DEX) work
The decentralized exchange works on the basis of smart contracts; which means that a series of agreements or guidelines must be fulfilled or executed in order for this contract to be fulfilled.
That is, you will have to establish some terms so that the exchange of a certain pair of cryptos perro be carried out.
On the other hand, to carry out an exchange, the usuario must entrar the platform, backlink it with his cryptocurrency walletestablish the type of order and choose the pairs with which you want to carry out the transaction.
Afterwards, the DEX will immediately look for an order from another usuario who has established the same guidelines that have been requested to carry out the transaction. Basically the DEX brings together a group of investors and allows secure peer-to-peer trading. thanks to smart contracts; without the need to use intermediaries or third parties.
How are decentralized exchanges different from centralized ones?
Their main difference is that they are based on the smart contracts of a given blockchain; like Ethereum for example.
Thanks to this, the investor who makes use of the decentralized exchange enjoys benefits such as:
- Anonymity.
- Security.
- Privacy.
Since, let’s remember that at no time will they request information from the investor to register; nor will there be a backlink with an entity or the like thanks to the absence of a regulator; in addition to the usuario will always be guarding their fundsand they will never be on a third-party platform, as it would be on a common exchange.
Advantages and disadvantages of decentralized exchanges
DEXs offer a series of privileges, and clearly also some destacable disadvantages compared to the well-known centralized exchanges.
Let’s see them:
Advantages of decentralized exchanges
- Registration of personal data is not necessary, thus allowing the usuario to remain anonymous at all times and preventing the theft of personal data.
This is a remarkable point that has been lost with CEXs (centralized exchanges).
- Because it is a decentralized platform, it cánido be said that it is transparent.
Which significantly reduces the possibilities of manipulation on the platform.
- Unlike centralized exchanges, a DEX has Low oportunidad of getting hacked or witnessing a server crash.
This is thanks to their security levels and also because they do not use a single server to host the data.
Disadvantages of decentralized exchanges
- Its main disadvantage is that it is generally a complex platform. and not everyone manages to sympathize with her.
Therefore, you must surely view content on YouTube or request help from an expert to use the platform.
- They are limited with the cryptocurrencies that cánido be traded.
This is because each DEX is hosted on a certain blockchain, which means that they will only have compatibility with tokens from that blockchain.
Even so, it is not a problem, since most of the DEXs are hosted on Ethereum; that is, there will be great compatibility with cryptos thanks to the fact that it is one of the main block chains on the market.
- You perro only trade with the market order: If you are more experienced with cryptocurrencies, you will surely find it a great disadvantage.
While in the CEX you will have more options such as Stop Loss, Limit, etcétera.
- He liquidity level from a decentralized exchange is generally quite a bit lower.
Examples of decentralized exchanges (DEX)
Although they perro be considered a novelty due to the fact that in recent years they have become more relevant, the truth is that decentralized exchanges are many and have been in operation for years.
However, some of the most used are:
- PancakeSwap: This is one of the most used DEXs, it stands out for being developed on the Binance network, which would be the BSC (Binance Smart Chain).
Its main reason for use is due to the low fees per transaction, in addition to giving users the possibility of being a liquidity provider, doing yield farming or simply exchanging tokens.
- UniSwap: It is a type of exchange that bases its protocol on the Ethereum blockchain network that has a reward system for liquidity providers of up to 5% of the transaction fees paid by users.
Like the previous DEX, UniSwap also emplees an AMM (Automated Market Maker) elabora.
- SushiSwap: It is a DEX quite afín to the one mentioned before.
Although years later, it made a change to part of its code to innovate and thus attract a new type of investor.
It should be noted that one of the main differences that it has compared to UniSwap is that it is hosted on the Binance Smart Chain.
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