DEXs are quickly gaining popularity over centralized exchanges because they let regular investors leverage faster trades. As Ethereum co-founder Vitalik Buterin has stated, the focus of DEXs is “NOT satisfying the needs of ‘whales’ and professional traders. Rather, it is in user convenience for regular people.” If DEXs become more user-friendly and offer the advanced trading features common on centralized exchanges, their popularity is likely to surge.
A Quick Note on DEXs and Centralized Exchanges
Centralized exchanges hold funds as a third party in transactions, making their large sums a tempting target for hackers. From Mt. Gox to the more recent Bitfinex and Bitgrail hacks, millions of dollars have been stolen from centralized exchanges. Though security measures vary greatly, centralized exchanges are at much greater risk of hacking compared to DEXs.
Centralized exchanges also require personal information and are more prone to server downtime. There have even been some allegations of price manipulation by professional traders on some centralized exchanges. Decentralized exchanges let you keep your funds in a secure wallet and off the exchange. They’re largely anonymous, with no reported server downtimes and virtually no hacks because of their distributed trading systems.
DEXs reflect the same trustless nature of the cryptocurrencies they trade. Transactions are peer-to-peer, without a third-party centralizing funds as an intermediary. Your funds are in your wallet until you trade them, and DEXs also allow for more privacy. But most importantly, DEXs bring fast, fair and easy trading to regular people without wait times. The DEXs below are ranked firstly based on their daily market volume, secondly by their potential to maintain that volume or grow over time, and lastly for unique features that separate them from other DEXs.
While Bancor functions like a DEX, it is not based on the traditional bid/ask model of other decentralized exchanges. Bancor doesn’t match buyers and sellers in P2P transactions like other DEXs do. Rather, conversions are made against smart contracts that hold balances connected to integrated tokens in the Bancor Network. This means no waiting for a matching seller or buyer in order to transact; users can always buy or sell any integrated token on the network directly from within the Bancor Wallet. Thanks to last week’s fiat-to-crypto integration, the Bancor Network also can exchange funds from any major credit card to crypto, which is a huge convenience.
Behind the scenes, the Bancor Protocol connects cryptocurrencies to form liquidity networks that enable instant on-chain conversion. BNT is the hub token that connects all tokens in the Bancor Network, allowing them to be easily converted to one another. Over 100 blockchain apps, each with its own digital currency, have announced integration with the Bancor Network, while many of the industry’s most popular tokens, including ETH, EOS, DAI (MakerDao) and BNB (Binance), are already live and instantly convertible on the network.
A big part of Bancor’s appeal is its high token liquidity and the fact that Bancor takes no spreads or fees on token conversions. Bancor recently surpassed IDEX in daily trading volume, making it the largest decentralized solution for buying and selling tokens.
IDEX offers some of the same advanced features seen on centralized exchanges but not available on other DEXs, including market orders, instant order books, and instant gas-free cancels. IDEX hosts more than 200 different tokens – that’s more than any other DEX – but it does require you to hold tokens on the exchange in order to trade.
IDEX is part of Aurora, a platform that’s designed to be an all-inclusive decentralized finance hub for applications and protocols. Aurora has its own stablecoin called Boreal (BRL) backed by the Aurora DApp ecosystem, collateralized debt, and ether reserves.
The large selection of tokens available on IDEX makes it one of the top choices among DEXs. Investors who are knowledgeable about cryptocurrencies seek it out, buying into coins at lower prices before they are offered on other exchanges. IDEX has long been the top DEX in terms of daily trading volume, making it a continual example for other up-and-coming DEX platforms.
OasisDEX was formed a year ago by the founders of MakerDAO. Originally called Maker Market, OasisDEX is a liquidity pool that allows for smart contract trades without KYC rules, a signup, or the exchange of personal information. It offers low fees but is limited to exchanges between ETH, DAI, and MKR tokens.
MakerDAO seeks to create a stable cryptocurrency in DAI, where one dollar equals one DAI. Members buy MKR tokens in order to take part in governance. When the price of DAI exceeds one dollar, there’s a large market sell-off, and OasisDEX frequently surpasses IDEX and Bitshares in total market volume during these sell-off surges. Two weeks ago, DAI was worth $1.06, which led to a massive sell-off, but this week it’s at $0.99, and OasisDEX has returned to the #3 position in the group.
Changelly uses AI robots to find the lowest exchange rates on centralized platforms. Trading bots make bids and asks on behalf of investors, leaving funds off the exchange until it’s time for settlement.
Because Changelly leverages rates from multiple sites, it can offer variable and competitive rates. Changelly is mainly for quick crypto-to-crypto transactions, so it’s not a good option for those selling cryptocurrency for cash or sending payments. Changelly doesn’t require one’s personal identity information, making it fast and easy to open an account. It uses 2-factor authentication with each account created for added security.
In just six months, Binance became the world’s largest centralized exchange, with a daily trading volume often surpassing $1.5 billion. A few weeks ago, Binance announced plans to add a decentralized exchange component called Binance Chain. Binance Chain will use Binance Coin (BNB) as its liquidity token, with a focus on fast and easy transactions over a decentralized platform.
Since its DEX announcement, the price of BNB has shot up from $8 to a little over $12 in an otherwise sinking market. Binance plans to keep its centralized platform as well, so it remains to be seen how much of Binance’s large trading volume will migrate to its decentralized platform.
The Future of DEXs
Though centralized exchanges currently offer friendly user interfaces and more advanced trading options unavailable on most DEXs, change is coming. As big names like Coinbase and Binance look into their own versions of decentralized exchanges, it’s only a matter of time before better UX and many of these features are added to DEXs as the market itself continues to grow.