The best Decentralized exchanges (or DEXes) are crypto exchanges that do not require third-party services for operating with cryptocurrency assets. Decentralized exchanges (DEXs) provide an avenue for the safe buying and selling of cryptocurrencies, without users having to give assets over to third parties.
In this article, we’ll explain what DEXs are, and how they work and provide a List of Top Decentralized Exchanges platforms for 2023.
What is a Decentralized Exchange? And How Do DEXs Work?
A decentralized exchange (DEX) is a peer-to-peer market in which users can exchange cryptocurrency without requiring a middleman, which would facilitate funds transfers and custody.
Decentralized Exchanges, or DEXs, are blockchain-based applications that allow individuals to exchange cryptocurrency in a non-custodial way, instead of the traditional approach of serving as financial middlemen between market participants.
To put it in simple terms, Decentralized Exchanges (DeXs) allow users to buy and sell cryptocurrencies to each other without requiring the use of brokers.
Decentralized exchanges, aka DEXs, are peer-to-peer markets in which crypto traders execute transactions directly, without having to give up control of their funds to a middleman or a custodian. A decentralized exchange is another kind of exchange that allows for peer-to-peer transactions directly from one’s own digital wallet, without going through an intermediary.
In a decentralized crypto exchange, you connect your crypto wallet with the software running on a DEX site. A DEX is a decentralized cryptocurrency exchange that allows individuals to trade directly from their crypto wallet.
Cryptocurrency exchanges are platforms that let users exchange crypto and are generally differentiated into either centralized exchanges (CEXes) or decentralized exchanges (DEXes).
Even at an early stage of development, decentralized cryptocurrency exchanges provide advantages affecting custody and variety of digital assets, trust of transactions, transaction fees, and privacy for investors.
Types Of Decentralized Exchanges
There are three major types of decentralized exchanges:
- Automated market makers (AMMs)
- Order book DEXs
- DEX aggregators
All allow users to transact with one another directly via their smart contracts. The early decentralized exchanges used a similar kind of order book as the centralized ones.
Automated Market Makers (AMMs)
An Automated Market Maker (AMM) system, which relies on smart contracts, was created to address liquidity issues. The creation of these exchanges came in part from the inspiration derived from Ethereum co-founder Vitalik Buterin’s decentralized exchanges paper, which describes how trades can be executed on a blockchain using contracts holding tokens.
These AMMs depended on blockchain-based services, which provided information from the exchanges and other platforms, in order to establish prices for trading assets, called blockchain oracles.
Instead of matching buy and sell orders, these decentralized exchanges use smart contracts to utilize pools of pre-funded assets known as liquidity pools. The pools are financed by other users, who are then entitled to the transaction fees the protocol charges to execute a trade in that pair.
These liquidity providers must deposit the equivalent value of each asset on a trading pair in order to receive interest on their crypto holdings, a process known as mining for liquidity. If they try to deposit more of one asset than the other, the smart contracts behind the pools will cancel the transactions. Using a liquidity pool allows traders to execute orders or to receive interest without authorization or trust.
These exchanges are typically evaluated by how many funds are locked up inside of their smart contracts, called the total value locked (TVL) because there is one drawback of AMM models where there is insufficient liquidity: slippage. Slippage occurs when the lack of liquidity in a platform results in the buyer paying an above-market price for his or her order, with larger orders facing higher slippage.
A lack of liquidity may discourage rich traders from using these platforms since larger orders are more likely to experience slippage in the absence of deeper liquidity. Liquidity providers also run into a variety of risks, including ephemeral losses, a direct consequence of depositing two assets to trade on a particular pairing.
When one of those assets is more volatile than the other, exchange trades may reduce the quantity of the asset in the liquidity pool. If the price of a highly volatile asset increases, but the amount held by the liquidity provider decreases, then the liquidity provider incurs a temporary loss.
The loss is impermanent, as the asset price may still rise again, and trading at an exchange may equalize the pair’s relationship. The pair ratio describes the fraction of each asset held by a pool of liquidity. Also, fees collected on trades may offset losses over time.
Order Book DEXs
Order books keep records of all the open orders for buying and selling assets in a given pair of assets. Buy orders signify a trader’s willingness to purchase or offer a specific price for the asset in question, and sell orders signify that the trader is ready to sell or offer a particular price for the asset in question. The spread between these prices defines the depth of order books and market prices at the exchange.
Order book DEXs have two types:
- On-chain order books
- Off-chain order books
On-Chain Order Books
For some decentralized exchanges, transactions are processed on-chain, including modified and canceled orders. Philosophically, this is the most decentralized and transparent process, as it bypasses the need to trust any one-third party with processing every order, at any time.
However, the method is not very practical when executed. By placing all stages of the order onto a blockchain, Dex goes through a laborious process, asking each node in the network to permanently store the order via miners, in addition to paying for it.
Some have criticized the decentralized cryptocurrency exchange model for the fact that its slower transaction times enable front-running, where investors watch an asset’s price closely, waiting until the very last moment to buy or sell just before anticipating the price will increase or decrease.
Others counter that since all orders are published to the public ledger, from the traditional point of view, there is no exceptional ability for any selected person to engage in front-running. However, there has been some doubt as to whether it is possible for a miner to front-run, by notifying the order prior to confirmation, and forcing his or her order to be added to the blockchain first.
Off-Chain Order Books
Dexes with non-chained Order Books are still somewhat decentralized but are a bit more centralized than their chained counterparts. Unlike orders stored in a blockchain, off-chain orders are published somewhere else, like the centralized organization governing the order book.
Such an entity may use access to the order book to preemptively execute or incorrectly represent orders, however, the user’s funds will remain protected by DeX’s non-custodial model.
Some ERC-20 tokens on the Ethereum blockchain offer a DEX that operates in similar ways. While sacrificing a certain amount of decentralization, the DEX may provide the structure to allow parties to operate an order book outside of the chain via smart contracts.
Then, the hosting party can tap into the larger pool of liquidity and broadcast orders among traders. Once parties are aligned, the transaction can then execute in-chain.
These models may prove to be more beneficial to users than relying on a slow-moving, on-chain order book. With less congestion and faster confirmation times caused by the initial blockchain iterations, off-chain order books may offer faster speeds.
DEX Aggregators
DEX Aggregators utilize a number of different protocols and mechanisms for solving issues related to liquidity. These platforms essentially aggregate the liquidity of multiple dexes in order to minimize the slippage of larger orders, optimize exchange fees and token prices, and provide traders with the best prices possible for as little time as possible.
Protecting users from pricing effects and reducing the probability of failed transactions are two other important goals of DEX aggregators. Some DEX aggregators also use liquidity from centralized platforms in order to give users better experiences, all the while remaining noncustodial, leveraging integrations with particular centralized exchanges.
Top 20 Best Decentralized Exchanges Platform To Be Used Right Now
Here is a list of the best Decentralized Exchanges (DEXs):
| Name of the DEX | Supported Blockchain Network | Trading Fee | Know More Details |
| 1. Uniswap | Ethereum | Variable (0.05%, 0.3%, or 1% of transaction value) | Read More |
| 2. DYDX | Ethereum Cosmos | DYDX does not charge any deposit or withdrawal fees, and no gas fees are charged when trading on layer 2. | Read More |
| 3. Kine Protocol | Ethereum | Kine charges 0 gas fees and a fixed trading fee of 0.1% per every executed order, with exceptions for HT, OKB, and WOO (which are charged at 0.8%). | Read More |
| 4. Pancake Swap | Binance Smart Chain | 0.2% of transaction value | Read More |
| 5. Curve Finance | Ethereum | 0.04% of transaction value | Read More |
| 6. DODO | Ethereum Polygon BSC Arbitrum | Variable | Read More |
| 7. Balancer | Ethereum | Variable | Read More |
| 8. ApolloX DEX | BNB Chain | 0.1% maker and taker fee for spot trading and a 0.02% maker fee and a 0.07% taker fee for futures trading | Read More |
| 9. SushiSwap | Ethereum Polygon Binance Smart Chain Fantom HECO xDai Harmony Avalanche OKExChain | 0.3% of transaction value | Read More |
| 10. Perpetual Protocol | Ethereum | 0.10% maker and taker fee | Read More |
| 11. KyberSwap Elastic | Ethereum Polygon Avalanche Fantom | No fees – Associated DEX might charge a fees | Read More |
| 12. Deri Protocol | BNB Chain Arbitrum | Variable | Read More |
| 13. Compound | Ethereum | Variable | Read More |
| 14. Sun.io | Tron | At the time of writing, there is no information about fees. | Read More |
| 15. Jupiter | Solana | No fees – Associated DEX might charge a fees | Read More |
| 16. QuickSwap | Polygon | 0.3% of transaction value | Read More |
| 17. 1inch Exchange | Ethereum Polygon Binance Smart Chain | 1inch – No fee. Associated DEX may charge their fee. | Read More |
| 18. Raydium | Solana | 0.25% of transaction value | Read More |
| 19. IDEX | Ethereum Binance smart chain | 0.25% fee on takers. 0.2% is sent to liquidity providers, and 0.05% is collected as protocol fees. | Read More |
| 20. Acala Swap | Polkadot | —— | Read More |
How to use decentralized exchanges (Beginner’s Guide)
Uniswap is a popular decentralized exchange offering peer-to-peer digital asset trading using smart contracts as its automated market maker.
Pancakeswap is another popular decentralized exchange for cryptocurrencies, which automatically executes trades within their platform through smart contracts. Dex is a decentralized crypto exchange offering access to digital assets without a middleman.
Decentralized Exchanges (DEXs) have emerged as an alternative to centralized exchanges, which allow individuals to trade cryptocurrency assets peer-to-peer with no third parties involved.
A decentralized exchange (DEX) is a digital currency exchange allowing users to purchase cryptocurrency via direct, peer-to-peer crypto transactions over a secure online platform with no middleman.
Rather than relying on one company to execute and record cryptocurrency transactions, DEX offers peer-to-peer (P2P) exchanges of tokens using blockchain technology.
Users swap tokens with one another directly using smart contracts built on the blockchain, rather than passing funds through a middleman or a central authority.
Specific traders utilize decentralized exchanges to take advantage of arbitrage opportunities due to new assets being introduced all the time and the fast pace at which developments are taking place within this space. Decentralized exchanges, for example, do not always let users deposit dollars and exchange for cryptocurrencies.
So, how can you use a DEX in 2023? In this step-by-step guide, we will show you how to use a DEX to buy, sell, or trade cryptocurrency.
Step 1: Choose a DEX
The first step is to choose a DEX that you would like to use. There are many different DEXs available, so be sure to do your research to find one that best suits your needs.
Step 2: Create an account
Once you have chosen a DEX, you will need to create an account. This process is typically very straightforward and only requires you to provide a few basic pieces of information, such as your name and email address.
Step 3: Deposit funds
Once your account has been created, you will need to deposit funds into it. This can be done by transferring cryptocurrency from a wallet or exchange into your DEX account.
Step 4: Start trading!
Once you have deposited funds, you are ready to start trading! DEXs typically have a very user-friendly interface that makes it easy to buy, sell, or trade cryptocurrency.
So there you have it! A step-by-step guide on how to use a DEX in 2023. Be sure to follow these steps to ensure a safe and successful experience.
Advantages and Disadvantages of using DEXs
Dex is a decentralized cryptocurrency exchange offering access to digital assets without a middleman. Decentralized exchanges are best for investors looking to move between different digital assets, but are less well-suited to those looking to buy or sell digital assets using fiat currencies, called on-ramps and off-ramps.
Unlike DEX, centralized cryptocurrency exchanges (CEXs) do not need users’ funds in order to offer liquidity to cryptocurrency traders. Because there is no centralized authority monitoring trading or providing cryptocurrency, DEXs depend on the average crypto investor to provide liquidity for the token.
DEXs frequently run into problems in this regard, as, unlike centralized exchanges, DEXs liquidity is highly dependent on the number of users who are actively trading on the platform.
DEX platforms that keep their order books off-blockchain only settle transactions onto the blockchain in order to provide centralized exchange benefits to traders.
Some DEX aggregators also leverage liquidity from centralized platforms to give users better experiences, all without being centralized themselves, leveraging integrations with particular centralized exchanges.
With DEXs, users are able to exchange new, unfamiliar cryptos which were difficult to trade with anywhere else before, whether it is through DEXs or DApps (decentralized applications) built together.
Users of a decentralized exchange can access the DEX seamlessly and safely, without having to create an on-exchange account, go through ID verification, or submit personal information.
Decentralized exchanges, or DEXs, are standalone decentralized applications (DApps) that enable buyers or sellers of cryptocurrencies to transact without having to hand over control of their funds to any middleman or gatekeeper.
While the first-generation DEXs used an order book, recent decentralized exchanges have implemented a new mechanism called an automated market maker.
Because DEXs utilize decentralized smart contracts coded in a public blockchain, users always keep private keys for their cryptocurrency wallets, eliminating counterparty risk that is common with centralized exchanges (CEXs).
Decentralized Exchanges vs Centralized Exchanges
Cryptocurrency exchanges are platforms that enable users to exchange crypto, they are generally differentiated into either centralized exchanges (CEXes) or decentralized exchanges (DEXes).
Decentralized cryptocurrency exchanges differ from centralized crypto exchanges by allowing users to maintain control over their assets while running their essential tasks on a blockchain. Cryptocurrencies operate on decentralized blockchain protocols, so it has long been ironic that trading in them has been restricted to centralized organizations, which block direct blockchain access.
Centralized cryptocurrency exchanges offer users a broad array of exchange options, including cryptocurrency credit and loans, airdrops, futures trading, options, spot trading, and leverage. Centralized exchanges represent the overwhelming majority of the cryptocurrency markets’ trading volumes, as they are regulated entities that hold users’ funds and provide user-friendly platforms for beginners. Decentralized exchanges are less convenient to use than centralized options, and they may lack funds to support large-scale trades because of fewer users.
One of the more obvious advantages of decentralized exchanges is cutting out a middleman and conducting peer-to-peer transactions without central authorities. When the trade is ready to go through the Decentralized Cryptocurrency Exchange, a gas fee needs to be paid, by which your trade is confirmed via the Blockchain.
Top Cryptocurrency Decentralized Exchanges for trading
Here is a list of the Top Decentralized Exchanges for Crypto Trading:
- Uniswap
- DYDX
- Curve Finance
- Kine Protocol
- PancakeSwap
- DODO (Ethereum)
- Sun.io
- ApolloX DEX
- Sushiswap
- Perpetual Protocol
Also, check out:
- How to Buy Bitcoin With PayPal?
- What Is Bitcoin? And How Does It Works?
- The Top 10 Best Cryptocurrencies To Invest In 2023
- What Is a Blockchain? How It Works, And How It Can Be Used
- How to Buy Bitcoin?
- How to Buy Bitcoin With a Credit Card?
Is a DEX feasible for smaller transactions?
Yes, it is feasible. However, you have to understand that a large transaction doesn’t mean large capital, it is the amount of money being transacted. If you are into a business that requires quite a lot of money to be transferred, then DEX is the way to go. But if you are a freelancer, or managing your own small business, then a DEX would be a little too high maintenance for you. You can always use a third-party service like PayPal.
What is the trading fee on DEXs?
It varies by decentralized exchanges, but fees are generally lower because they are not powered by a centralized organization. In many cases, they might be even zero. Also, DEXs are not trading coins, but rather, trading pairs of coins. It usually means that the exchange logic is simpler and thus, requires fewer fees to operate.
Can I use Ledger Wallet with decentralized exchanges?
YES. You can use Ledger Wallet for decentralized exchange. But, you should use the right apps. For example, Bancor and Kyber use their own tokens, not Ethereum. So, you should use the Ledger Wallet Ethereum app to connect to it as in Bancor.
What is a Decentralized Exchange?
Decentralized exchanges are decentralized marketplaces for cryptocurrency. These exchanges do not rely on a third-party service to hold the customer’s funds. Instead, trades occur directly between users (peer to peer) through an automated process. Decentralized exchanges are a more private way to trade cryptocurrencies. They do not collect information about their users and belong to no one.
Decentralized exchanges are also incredibly secure, as a loss of funds requires malicious action on the part of the exchange itself, rather than mere negligence. Decentralized exchanges are not without their drawbacks. They currently have a very low volume of trading. They also require the use of complex cryptography based on the blockchain.
Are Decentralized Exchanges Legal?
Decentralized exchanges are legal in the United States and other countries as well where the transactions are not considered securities. Seychelles and Switzerland have provided favorable conditions for the establishment of decentralized exchanges, and Japan has granted licenses to various decentralized exchanges including JADAKEN and bitFlyer. It is not easy to regulate decentralized exchanges, so they are not close to being legal in the United States.
Are Decentralized Exchanges Safe?
Decentralized Exchanges are much safer than their centralized counterparts. Let us have an in-depth look into the features of a decentralized exchange. Firstly, Decentralized Exchanges are a system of peer-to-peer marketplaces. It does not rely on any central servers for operations. All the transactions are directly between two parties.
Thus, it is impossible for any third party to freeze your assets or charge back your payments. Moreover, it is impossible for anyone to reverse, censor, or block any transactions. In Decentralized Exchanges, all the transactions are encrypted and each exchange has its own unique address.
They use public key cryptography to verify the validity of each transaction. In Decentralized Exchanges, private keys are generated and stored on your device. Unlike Centralized Exchanges, Decentralized Exchanges do not have access to your private keys. Thus, you are in full control of your own assets.
What’s the difference between a decentralized exchange (DEX) and a centralized exchange (CEX)?
The best way to understand the difference between a DEX and a CEX is to look at their builders’ intent and motivation.
A decentralized exchange doesn’t need a third party to hold your funds. You simply trade directly with another party, using escrow if you’re worried about non-payment. This makes them safer because there is no one you need to trust.
A centralized exchange, on the other hand, holds your funds and has control over them. You must trust them to keep your funds safe. If something bad happens to the exchange, you can lose money.
Can a decentralized exchange get hacked?
The answer is an emphatic NO. A decentralized exchange is not a centralized server as in a traditional exchange. A decentralized exchange operates on a blockchain, which means that every user is a node within the network.
This means that users are not connecting to a centralized server which makes it almost impossible to hack. No hacker can hack into a decentralized exchange and many attacks on centralized exchanges have been successful due to the vulnerability of the central authority.
Decentralized exchanges are gaining popularity due to the fact that they are much safer than traditional centralized ones. The issues of centralized exchanges such as Mt. Gox and Bitfinex are still fresh in the memory of crypto users.
The security at DEX is based on the fact that every single exchange is peer-to-peer, as opposed to the traditional model where transactions are run over a system that is entirely controlled by a central authority. In a decentralized exchange, all participants have the same amount of control, and the system is not dependent on a single entity.
How do I buy on decentralized exchanges?
We realize that decentralized exchanges are the future, and the current centralized exchanges will need some time to integrate the blockchain. Currently, decentralized exchanges are mostly exchanges with crypto-crypto pairings. A few examples are EtherDelta, IDEX, and OasisDEX.
Here are some quick tips for trading on decentralized exchanges. (1) Register for an account on a decentralized exchange. (2) Deposit your cryptos on the exchange. (3) Place a market or limit order by sending a transaction to the smart contract on the blockchain. (4) After your order is filled, withdraw your funds.
Can the IRS track decentralized exchanges?
The IRS has no way of tracking transactions made on decentralized exchanges like LocalBitcoin. However, they can still track your transactions if you deposit or withdraw fiat via a centralized exchange. That’s why we suggest you use LocalBitcoin for your Bitcoin transactions.
LocalBitcoins is a P2P exchange (person to person) where you can meet a local buyer/seller of Bitcoin in person and exchange cash for Bitcoin using the LocalBitcoins website. You don’t need to link your bank account or give your financial information to anyone. This is the only way to ensure your privacy when buying and selling Bitcoin with fiat.
Can US citizens use decentralized exchanges?
Decentralized exchanges are the legal gateway for most Americans to access altcoins. Investors can benefit by both buying and holding altcoins or DEX tokens to take advantage of this rising trend. The legality of DEXs is as varied as crypto assets themselves.
In the United States, some exchanges are banned in the state of New York, among others. Uniswap, the largest Decentralized-Exchange (DEX), is headquartered in the U.S. So, the answer to “Is Uniswap available in the U.S.?” is a resounding “YES”. You can legally swap your crypto tokens on Uniswap in the U.S. and many other countries around the world.
How do Decentralized exchanges work?
A decentralized exchange (DEX) is a digital currency exchange that allows users to purchase cryptocurrencies via direct, peer-to-peer crypto transactions on a secure online platform, with no middleman.
Users can exchange crypto in a decentralized (decentralized exchange) environment in a non-custodial environment, with no need to have a middleman handle fund transfers and custody. DEXs enable users to transact and exchange cryptocurrency without the need for a centralized financial intermediary.
Trading on such platforms takes place directly among participants (peer-to-peer) with no financial intermediary. One of the clearest advantages of decentralized exchanges is cutting out a middleman and conducting transactions peer-to-peer with no central authority.
Decentralized exchanges are essentially peer-to-peer markets that enable cryptocurrency traders to conduct transactions without having their assets handed over to a custodian or middleman.
Decentralized exchanges, aka DEXs, are peer-to-peer markets, where cryptocurrency traders directly execute transactions without handing over the control of their funds to an intermediary or a custodian.
Their functions are similar to that of traditional centralized platforms, but unlike those, DEXs offer direct, peer-to-peer transaction mechanisms that are powered by smart contract execution.
One of Solanas primary DEXes, called Serum Solana, uses a decentralized order book that allows its users to exchange assets without requiring an intermediary in the blockchain.
Top Decentralized Exchanges for Crypto Trading
Here is a list of the Top Decentralized Exchanges for Crypto Trading:
1. Uniswap
2. DYDX
3. Curve Finance
4. Kine Protocol
5. PancakeSwap
6. DODO (Ethereum)
7. Sun.io
8. ApolloX DEX
9. Sushiswap
10 Perpetual Protocol
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