What is a DEX (Decentralized Exchange) in cryptocurrency?

Decentralized exchange, or DEX, is an important component of the cryptocurrency ecosystem and has several benefits over more centralized exchanges. We shall talk about "What is a DEX?", how they work, and some of their advantages in this article. Let's begin with Market247.io.

What is a DEX?

A DEX (Decentralized Exchange) is a type of cryptocurrency exchange that allows for direct peer-to-peer trading. DEX are often built on decentralized protocols and can be supported by decentralized technologies such as smart contracts and blockchain. It is a simple answer to the question "What is a DEX in crypto?"

Advantages and Disadvantages of DEX

What is DEX’s advantage?

Right to Control

By using CEX, you give the exchange the power to keep your assets. You hold entire ownership of your assets when using the DEX. Smart Contracts will be used for all peer-to-peer transactions.

Anonymity

Users of centralized exchanges (CEX) must KYC (check identification) before making significant withdrawals from the exchange. The user's identity will consequently be exposed. If you use DEX, the exchange only knows how many wallets you have; it does not know who you are. This is an excellent point.

Security

In the cryptocurrency market, many centralized exchanges have been compromised by hackers, with horrible consequences, including the loss of all customer money. Large centralized exchanges are usually a good target for hackers to attack and steal the exchange's assets, despite being meticulously secured. For DEX, it is almost impossible for hackers to attack and take over users' assets. Because user assets reside on the Blockchain and are secured by the nodes in the network.

What is DEX’s disadvantage?

Besides the advantages, DEX still has many limitations that need to be overcome. Let's find out What is DEX’s limitation?

User experience is not good

Although the DEXs that have appeared recently, offer a better user experience than the old ones. But it still can't meet the smoothness like the way CEX centralized exchanges are doing.

Lack of liquidity

Decentralized exchanges provide significantly less liquidity than centralized exchanges. Due to a number of variables, traders are less likely to use DEXs, which reduces the liquidity of decentralized exchanges. If DEXs have solutions that draw more traders, have better UX/UI, and support more sorts of transactions, such as margin trading, this can be solved in the future.

Transaction Latency

Transaction latency is also another weakness of decentralized exchanges. Since the orders executed on-chain on the Blockchain platform wait for the confirmation of the nodes, there is a delay in the execution of the transaction order.

How does DEX work?

After understanding “what is a DEX” clearly, let's see how a DEX works?

A DEX is a type of cryptocurrency exchange that does not rely on a third party to hold the customer's funds. Instead, peer-to-peer exchanges are mediated by an automated mechanism directly between users. Unlike CEX, which are operated by a single organization, this kind of exchange is frequently thought to be more private and secure.

Decentralized exchanges normally work by using smart contracts to match orders from buyers and sellers. These contracts can be automatically carried out when specific requirements have been met and are stored on a blockchain, usually Ethereum.

Sushiswap, Pancakeswap, and Bancor are a few well-known decentralized exchanges. Users can trade a wide range of cryptocurrencies on these platforms, including well-known coins like Ethereum (ETH), Bitcoin, and many others.

The difference between CEX and DEX?

We all know CEX and DEX are two popular types of exchanges on the market today, So what's the difference between them?

While DEX allows users to trade directly from their cryptocurrency wallets, CEX requires users to deposit their funds with the exchange.

DEX uses an open order book that is maintained by the community while CEX uses their own order book to match orders from buyers and sellers.
CEX now dominates the market in terms of popularity, with the top 10 exchanges accounting for more than 95% of total trading volume. DEX are becoming more and more well-liked, with the top 10 handling over 30% of all trade volume.
Because it can more quickly match buyers and sellers, a centralized exchange has higher liquidity than a decentralized one. This is so that the supply and demand of the assets on the platform may be controlled. Centralized exchanges are managed by a single firm.
Decentralized exchanges are not governed by the laws of the nation or region in which they are located, unlike centralized exchanges. Users who prefer to trade in less controlled conditions may find decentralized exchanges more appealing as a result of this.
The risk of a single point of failure exists for centralized exchanges but not for decentralized exchanges. In general, both exchanges are made to make trading in digital assets easier. Centralized exchanges are more popular and frequently list new assets and trading pairings more quickly. Decentralized exchanges, on the other hand, provide greater security and anonymity. When choosing exchanges for your trading activity, you need to use caution.

The future of DEX

At the present time, the ecosystem of decentralized exchanges is still in its infancy and does not have many supporting tools, and does not have more liquidity than centralized exchanges. Regardless of those limitations, there's no denying that DEXs are becoming increasingly popular. So what is DEX’s potential in the future?

Decentralized exchanges are trying to attract traders to use and trade on this kind of exchange. In the future, it is hoped that the strong growth of DeFi in particular and the cryptocurrency industry in general would result in the strong growth of decentralized exchanges.

Conclusion

Market247.io hopes that through this article, everyone has been able to answer the question "what is a DEX in crypto" in a clear and understandable way. If you have any questions, please send them to us through the channels for the fastest response.

What is a DEX in cryptocurrency? - FAQs

What is the largest DEX?

The largest DEX at the moment is Uniswap, which had a 43% market share as of May 2022. The Uniswap DEX uses decentralized liquidity pools that are controlled by smart contracts as it is an automated market maker (AMM).

Is a DEX a smart contract?

No. Decentralized exchanges (DEXs) are the cornerstone application of smart contracts and blockchain technology.

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What is a DEX (Decentralized Exchange) in cryptocurrency? - Market247.io