The DEX landscape is as varied as it is vast, however, there are three major types of DEXs that you should know about before choosing the best platform for your needs.
Once clunky, maddeningly slow platforms primarily used by patient and technically savvy, decentralized cryptocurrency exchanges that have come a long way since their early days, and many are arguably on par with centralized platforms.
In two years, they have risen to become a force to be reckoned with after seeing their user counts swell, while DEX trading volume has gradually crept up on CEX volume — with some of the larger decentralized exchanges clocking in upwards of $1 billion in daily trade volume at times.
Now, the DEX landscape is as varied as it is vast, but there are three major types of DEXs that you’ll need to know about before choosing the best platform for your needs.
Automated Market Maker
Today, the vast majority of popular DEXs fall into the automated market maker (AMM) category.
With AMMs, assets are priced using a simple mathematical formula and are organized into liquidity pools, which are rebalanced when users add or extract liquidity from one side of the pool by trading.
AMMs do not have an order book and generally don’t support more complex order types. But they do generally allow users to contribute their assets to liquidity pools and earn a share of the fees generated by trades that source liquidity from these pools.
Currently, Uniswap is by far the best-known example of an AMM, and was one of the first exchanges to deploy an AMM protocol. The platform allows anybody to swap ether and any liquid ERC-20 token by routing orders through one or more user-contributed liquidity pools.
Though Uniswap is the most popular AMM on Ethereum, other major smart contract platforms also frequently have their own native AMMs. Some of the more prominent ones are listed below:
- Binance Smart Chain: PancakeSwap and SushiSwap
- Solana: Saber and Raydium
- Polygon: QuickSwap
- Avalanche: Pangolin
Want to brush up on your AMM lingo? Read about impermanent losses and liquidity pools, or learn how to use Uniswap.
Orderbook-Based
In the early days of decentralized exchanges, most platforms acted somewhat similar to centralized exchanges in that they operated an order book.
This essentially means traders are able to place their best bid or ask price for an asset, which may or may not be filled based on the available market liquidity. These also enable more complex order types not generally possible on AMMs — including limit, take profit, and stop-loss orders.
These were typically slow, offered limited liquidity, and typically required traders to deposit their tokens to a smart-contract controlled address to ensure orders could be automatically executed — which many would argue makes them partially centralized.
However, things have come along in leaps and bounds since then, and there are now a wide variety of decentralized orderbook-based exchanges in operation, as well as potentially dozens more in development. Many of these are now able to settle trades in a non-custodial and trustless manner.
For those that prefer a more traditional exchange experience, orderbook-based DEXs are generally the way to go. Some of the most popular orderbook-based DEXs for popular platforms include:
- Ethereum: dYdX and IDEX
- Solana: Serum
- Avalanche: Dexalot
Click here to learn more about dYdX, the leading orderbook DEX on Ethereum.
Hybrid/Alternative Platforms
Though most decentralized exchanges can be classified as either an AMM or orderbook-based platform, an increasing number of platforms are beginning to blur the lines between the two or offer something else entirely.
For example, platforms like Serum and Polkadex offer both AMM and orderbook-type trading features. Whereas the upcoming IDEX V3 platform blends the best parts of AMM and orderbooks into something new, which it terms “Hybrid Liquidity”, or HL.
This hybrid liquidity design aims to tackle some of the shortcomings of AMMs — such as failed trades, gas wars, and limited order control — by leveraging a trading engine that automatically matches trades using the best combination of limit and AMM orders.
On the other hand, platforms like Onomy Protocol take the DEX formula one step further by allowing users to seamlessly trade their assets across multiple blockchains (rather than using an individual DEX and wallet for each chain).
Moreover, the Onomy hybrid DEX (known as ONEX) uses a traditional order book to fill limit and stop orders, while trades made between any pre-existing spreads are filled with the AMM — helping to maximize returns for users while minimizing slippage and eliminating front-runners.
