forbitspace

<h2 id="header-0"><strong>Dex - Decentralized Exchange</strong></h2><p>A decentralized exchange is a marketplace that facilitates the exchange of one cryptocurrency to another with no centralized party involved. Everything is automated through smart contracts on the blockchain. The core capabilities of every DEX are buying, selling, trading, and portfolio management. These rely on smart contracts to lock coins (tokens) and automate trading through AMM — Automated Market Maker.</p><p>In a DEX, users can only swap one cryptocurrency for another. Unlike centralized finance, where users are matched with an individual merchant and can place buy orders, AMM provides tokens from a pool where everyone (liquidity providers) has deposited their tokens. them over time. This is called a liquidity pool or yield farming.</p><p>A liquidity pool is a mechanism by which users can deposit their assets into a DEX smart contract so that other traders have access to swap their tokens.</p><p>You must have heard the term Dex somewhere. This is an acronym for Decentralized Exchange built on the blockchain network.</p><p>A decentralized exchange (DEX) is a peer-to-peer (P2P) marketplace that connects cryptocurrency buyers and sellers. In contrast to centralized exchanges (CEXs), decentralized platforms are non-custodial, meaning a user remains in control of their private keys when transacting on a DEX platform. In the absence of a central authority, DEXs employ smart contracts that self-execute under set conditions and record each transaction to the blockchain. These trustless, secure transactions represent an accelerating segment of the digital asset market, and are pioneering new financial products.</p><h2 id="header-1"><strong>How does DEX work?</strong></h2><p>Unlike CEX, DEX doesn&#39;t allow for exchanges between fiat and crypto — instead, they exclusively trade cryptocurrency tokens for other cryptocurrency tokens. Via a centralized exchange (or CEX), you can trade fiat for crypto or crypto - crypto pairs — say some of your bitcoin for ETH. You can also often make more advanced moves, like margin trades or setting limit orders. But all of these transactions are handled by the exchange itself via an “order book” that establishes the price for a particular cryptocurrency based on current buy and sell orders — the same method used by stock exchanges like Nasdaq.</p><p>Decentralized exchanges, on the other hand, are simply a set of smart contracts. They establish the prices of various cryptocurrencies against each algorithmically and use “liquidity pools” — in which investors lock funds in exchange for interest-like rewards — to facilitate trades.</p><p>While transactions on a centralized exchange are recorded on that exchange’s internal database, DEX transactions are settled directly on the blockchain.</p><p>DEXs are usually built on open source code, meaning that anyone interested can see exactly how they work. That also means that developers can adapt existing code to create new competing projects — which is how Uniswap’s code has been adapted by an entire host of DEXs with “swap” in their names like Sushiswap and Pancakeswap.</p><h2 id="header-2"><strong>Types of Dex</strong></h2><h3 id="strong-order-book-dex-strong"><strong>Order book Dex</strong></h3><p>Order Book is a list showing all active buy and sell orders in the market. In the Dex Order book, transactions are only successful when the buyer&#39;s order matches the seller&#39;s order. There are two types of orders in the Order book:</p><p>Market order: the order will match the buyer and seller at the beginning of the book at that time.</p><p>Limit order: traders will choose the expected price and set the amount of cryptocurrencies to buy or sell. The order will stay on the order book until the system finds a suitable order, then it will automatically match the order.</p><p>- Some popular DEX order books: 0x, dYdX, Loopring DEX.</p><h3 id="strong-automated-market-maker-amm-strong"><strong>Automated Market Maker ( AMM)</strong></h3><p>AMM stands for automatic market maker. AMM mechanism, the algorithm will automatically calculate and adjust the asset value of a trading pair in the liquidity pool after a transaction. Every transaction is done using smart contracts.</p><p>- Some popular AMM DEXs: Bancor, Balancer, Curve, PancakeSwap, Sushiswap, Trader Joe and Uniswap.</p><h3 id="strong-dex-aggregator-strong"><strong>Dex Aggregator</strong></h3><p>DEX Aggregator is a liquidity aggregator from different DEXs, offering better rates and fees than a single DEX.</p><p>DEX Aggregator has a mechanism to optimize slippage as well as transaction fees to help users buy or sell tokens with the highest profit.</p><p>Some DEX Aggregator: forbitspace, 1inch, Matcha, Paraswap</p><h2 id="header-3"><strong>Potential benefits of using a DEX</strong></h2><p>Vast variety: If you’re interested in finding a hot token in its infancy, DeFi is the place to be. DEXs offer a virtually limitless range of tokens, from the well-known to the weird and totally random. That’s because anyone can mint an Ethereum-based token and create a liquidity pool for it, so you’ll find a greater array of projects, both vetted and unvetted. (Buyer definitely beware!)</p><p>Hacking risks can be reduced: Because all of the funds in a DEX trade are stored on the traders’ own wallets, they are theoretically less susceptible to a hack. (Relatedly, DEXs also reduce what is known as “counterparty risk,” which is the likelihood that one of the involved parties — including potentially the central authority in a non-DeFi transaction — will default.)</p><p>Anonymity: No personal information is required to use most popular DEXs.</p><p>Utility in the developing world: The peer-to-peer lending, speedy transactions, and anonymity made possible by DEXs have made them increasingly popular in developing economies — where solid banking infrastructure might not be available. Anyone with a smartphone and an internet connection can trade via a DEX.</p><h2 id="header-4"><strong>Conclusion</strong></h2><p>DEX is the foundational pillar of the cryptocurrency ecosystem, allowing users to exchange digital assets in a peer-to-peer manner without intermediaries. DEXs have experienced increasing adoption over the past few years due to the instant liquidity they can enable for newly launched tokens, their seamless integration experience, and citizen access capitalize on trading and provide the liquidity they provide.</p><p>It remains to be seen whether the majority of trading activity will migrate to DEXs and whether existing DEX designs will support long-term growth and institutional adoption. However, the DEX is expected to remain a critical infrastructure for the crypto ecosystem and will continue to see improvements in transaction scalability, smart contract security, infrastructure,… administration and user experience.</p>

Are DEXs Better Than CEXs?

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forbitspace

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