A decentralised exchange (DEX, decentralised exchange) is also an exchange based on a distributed ledger. Unlike a centralised exchange, a decentralised exchange does not store the funds and personal data of its users on its servers; it only acts as a platform for transactions with the assets of its users. Trading on such exchanges is carried out directly between users without intermediaries.
Let’s start by weighing up the pros and cons of DEX
With high trading speeds, a variety of pairs and elegant interfaces, DEX offers much more options for security and anonymity.
For those interested in cryptocurrency, especially in the traditional financial sector, trading in well-established cryptocurrencies such as bitcoin or ether still seems dangerous. With few exceptions, the threat of hacking is a major deterrent.
Malicious agents have been able to tap into various centralised exchanges and extract important user information to save money. In addition, losses have often exceeded multi-million dollar figures. More importantly, the lack of security tarnished the image of the crypto space as a potential competitor to traditional exchanges around the world.
Since then, various projects based on the application of different decentralisation principles have been developed to meet this demand. In the following list, we describe the nuances between these differences.
Several common threads will emerge, including whether DEX trades inside or outside the chain, how orders match, and how these platforms approach “know your customer” rules. Such rules have also been a major stumbling block for many in the crypto community.
One of the most interesting stories of 2019 was the fall of EtherDelta, a former global DEX leader. Its great popularity was due to the fact that the exchange did not require any KYC policies on the platform. Anyone anywhere in the world could simply log in and start trading immediately.
The authorities took precedent from the ” DAO Report ” in 2017 and pointed out that DEX had not filed with the SEC as a securities broker. The Commission explained that if the platform serves US citizens, it must also comply with US laws, including KYC procedures.
In hindsight, this problem was easily avoided. But this development is just one example of the common obstacles faced by DEX and the crypto markets.
Once these top levels of DEX have been considered, the advantages and disadvantages of decentralisation will become increasingly apparent. In terms of the metrics considered, we have included liquidity, KYC standards, trading volume, trading commissions, supported tokens, and technical details of how each platform approaches decentralisation.
Top decentralised exchanges (DEX)
Biswap is the first decentralised exchange platform on the market with a three-tier referral system and the platform’s lowest transaction fee (0.1%). We are a decentralised exchange platform for exchanging BEP-20 tokens on the Binance Smart Chain network. This network guarantees superior speed and a much lower cost of network transactions.
2. 0x protocol
The 0x protocol is a general purpose technology built on top of Ethereum. Projects from the games world, such as Gods Unchained, as well as projects in the DEX space, all use 0x to build their products. In fact, there are six known DEXs built on 0x. To understand how these exchanges work, you first need to understand the architecture of the Ox platform.
0x offers centralised databases, called Relayers, to help improve Ethereum’s scaling problems. Relayers mediate activity between users before interacting with the Ethereum blockchain. This could be, for example, order matching between traders.
Some DEXs that already operate on 0x include Radar Relay, UDEX, LedgerDEX, DDEX, Paradex, ERC DEX and several others.
These Relayers typically operate as off-chain matching mechanisms for order pairing. Once an order has been fulfilled, the transfer of digital assets takes place down the chain.
It should also be noted that each of the aforementioned Relayers can link to each other to increase the chances of order matching.
Consider the following example: Peter places an order to buy 0.5 ETH on any of the Relayers in DEX protocol 0x. This Relayers passes the order to all other Relayers until it finds a match. After matching with the merchant, the Relayer performs the exchange via a smart contract.
Radar Relay, the most visible DEX on 0x, reports the most activity, making approximately 155,000 total transactions with a volume of around $283 million since launching in 2017.
It is limited to trading ERC-20 tokens and has no KYC requirements (despite being based in the United States) and does not charge for trading via Radar Relay.
Bisq is another prominent decentralised bitcoin exchange. It allows users to exchange bitcoins for national currencies without revealing any identifying information. It is an open-source desktop application created and supported by developers around the world.
It uses Tor routing, local computing and personal wallets to ensure that no component of the software is centralised. It should be noted, however, that trading on Bisq is significantly slower because of these features. Unlike 0x Relayers, no part of the transaction is centralised, including matching buyers and sellers.
Instead, bitcoin sellers must manually search for orders in their preferred local currency and non-cryptocurrency payment method.
The convenience of placing an order also depends on which traditional payment platforms users intend to use. For example, some bitcoin orders are only available if users have a Zelle account. Other options include bank transfers, but this option may raise suspicion with certain financial institutions.
As far as security is concerned, all funds and deposits made prior to the transaction are held in escrow 2 of 2. The deposit required to start trading and prevent fraudulent behaviour is 2% of the total transaction amount. This is the closest equivalent to the commission for trading on this network.
CoinMarketCap indicates that about $119,000 has been traded on the Monero platform in the last 24 hours, about $15,000 for Bitcoin and less than $5,000 in the same period.
While liquidity is low and speed is slower than most, Bisq boasts complete decentralisation.
4. Airswap Protocol
Another DEX in the Ethereum family is called the Airswap Protocol. Airswap requires no identifying information for traders to start trading, and they do not charge a commission.
Indeed, there are many similarities between Airswap and 0x, but examining their differences will clarify the wide variety of Ethereum-based approaches to DEX.
Like 0x, Airswap balances certain off-chain activity for speed and other on-chain activity for security. Instead of relays, autonomous activity in Airswap is handled by a lightweight peer-to-peer detection engine. This engine also ensures that there is real intent to buy and sell certain assets. Each party was clearly looking for a counterparty to trade with, so cancellations of orders in Airswap are rare.
Once a trading partner has been established, both parties agree on the price of the digital asset in question. If a price cannot be agreed upon, the parties must request an oracle. The official Airswap document explains that “Oracle provides this pricing information to help both the Creator and the Creator make more informed pricing decisions and smooth the trade negotiation process.
To prevent dishonest activity, each transaction asks users to block the number of Airswap tokens for a certain period. Only ERC-20-based tokens are eligible for trading on this platform (including Tether), and the liquidity at press time is just over $12,000. It is currently backed by blockchain firm ConsenSys.
IDEX is one of the most popular DEXs on this list. At the time of publication, it had almost 50 bitcoins with liquidity and just under 400 different token pairs. All tokens are ERC-20 or traded using WETH (“ETH”).
Exchange users manage their funds through the Ethereum platform’s smart contract, which is accessed via a private key. There are four ways to open a wallet on IDEX: MetaMask, a key store file manually entering secret keys, or via Ledger Nano S .
Once connected, users need only transfer funds to the exchange using any of the four wallets to start trading.
In comparison, IDEX offers the most comprehensive trading experience of any DEX listed. Once on-site, users can view trading pairs and the status of various order books, and the interface gives users the ability to set market/limit orders. Similar to centralised exchanges, the order book is also updated in real time, which means that matching buyers to sellers is relatively efficient.
IDEX, however, is more centralised than other DEXs, as many transactions are controlled by a central authority (with the exception of how funds are settled). Users are still at the whim of the platform to ensure orders are fulfilled. But as compensation, they enjoy a smoother user experience and greater liquidity. This model, however, is still far more secure than any centralised exchange.
They also began implementing stricter KYC policies in August 2019. This, combined with the quasi-centralisation of the platform, has been a slight disadvantage for some in the crypto space. Market makers have to pay 0.1% commission on any transactions, while market makers pay 0.2% plus a gas fee to make a transaction.
The December 2019 release of Exchange 2.0 uses some advanced Ethereum technologies to improve scalability, including Optimized Optimistic (O2) Rollups. The use of proprietary technologies to improve efficiency makes IDEX a project worthy of attention in 2020.
The Bancor exchange model is very unique in that no second party is required to make transactions. Instead, users can exchange their ERC-20 token for their own Bancor smart network token. BNT holders can then exchange them for other ERC-20 tokens.
Any ERC-20 token can be stored in the Bancor protocol via a smart contract. This smart contract effectively acts as a reserve for the ERC token it holds. Because BNT is also compatible with Ethereum, its value is confirmed by every other ERC-20 token contained in various other smart contracts. The value of that token is automatically adjusted against those other tokens. Bancor’s FAQ reads :
” To know how much to give to a buyer or withdraw for a seller, the Smart Token constantly recalculates its price in relation to each of its connected tokens in relation to the supply and demand of the Smart Token.
The ultimate goal is to increase liquidity for small-cap tokens, which rarely find adequate markets on traditional exchanges.
It also allows a direct exchange between two different tokens, such as in an atomic exchange , but with an extra step. As an example, imagine that a user wants to exchange Tron for XRP. In the Bancor web application, users can select the two coins and connect the transaction to a wallet with TRX.
The Bancor protocol then scales various smart contracts to find one that contains TRX. Once TRX is converted to BNT, this BNT is then sold to another smart contract that contains XRP. Once completed, users receive the equivalent amount in XRP.
7. Kyber Network
The Kyber protocol is a stack of smart contracts that work on top of any blockchain. Unlike many of the other exchanges listed, Kyber is not an exchange per se and is suitable for handing out various tokens from an entirely different perspective.
8. Uniswap Exchange Protocol
The Uniswap Exchange Protocol, for all its promise, is also one of the most difficult DEX solutions to understand.
That’s because it overturns what we know about market makers, order books and prices. In an attempt to simplify how it works, Scalar Capital , an investment group specialising in cryptocurrencies, has provided one of the simplest explanations.
On traditional exchanges, order books are organised through different price categories and different requirements in each price category. In one order, a buyer might buy 100 baht for $20, while another seller might sell 200 baht for $32. Assuming there are hundreds of such transactions on the exchange, the figure that lies between the highest and lowest bid is defined as the BAT price during that trading period.
In Uniswap, all these orders are mixed and the final price is determined by an “automatic market maker” (AMM). All liquidity for that trading pair is then combined and divided into two categories.
9. Binance DEX
“Binance DEX is a decentralised exchange designed on top of Binance Chain, with low latency, high bandwidth, low fees and UX, similar to existing centralised exchanges. Oh, and you hold your keys or funds yourself. You don’t need to deposit your funds into the exchange.”
After launch, the original Binance ERC-20 (BNB) exchange tokens were burned and systematically replaced with BEP-2 format tokens using the Binance chain.
Selected validators produce blocks and manage the network. To encourage fair service, Validators charge a fee for their services. But because Binance Chain has far fewer nodes compared to Ethereum, Binance DEX can validate transactions on the network in seconds.
Critics have not been impressed with the launch, as the Validator scheme as of 11 June 2019 includes only 11 nodes. Compared to Ethereum, Binance Chain is still relatively centralised.