What is DEX? Overview of Decentralized Exchanges (2022)
What is DEX? Advantages and disadvantages of decentralized exchange DEX compared to centralized exchange CEX? Learn about the nature of DEX operations and the future here!
I am sure that many newcomers to the cryptocurrency market have also encountered at least once the terms DEX and CEX. This is always a topic discussed by many traders in chat groups active in the cryptocurrency market.
In this article, you and I will learn about what DEX is? What is more special than CEX that makes many traders argue without end.
What is DEX?
DEX (Decentralized Exchange) is a type of cryptocurrency exchange built and operated in a decentralized manner on the Blockchain platform. DEX allows trading to be done peer-to-peer on the Blockchain network without going through any intermediary organizations.
Pros and cons of DEX
1. Right to Control
Unlike when using CEX, you will give the right to hold assets in the hands of the exchange. At that time, you are essentially just being provided by the exchange to access and use that asset to buy and sell transactions through your account. On the other hand, the exchange can lock that access any time they want and you will lose all your assets.
When using the DEX exchange, you are completely holding the ownership of your assets. All transactions will be done peer-to-peer through Smart Contracts.
Centralized exchanges (CEX) will require users to KYC (verify identity) when making large withdrawals from the exchange. As a result, the user's identity will be exposed.
For DEX, you make transactions, the exchange only knows the number of wallets, but will not know who you are. This is a very good point.
In the Crypto market, many centralized exchanges have been hacked by hackers, causing serious consequences, losing all users' assets. Although always carefully secured, large centralized exchanges are always a good prey for hackers to attack and appropriate assets from the exchange.
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.
1. 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.
However, we can expect this to be improved in the near future.
2. Lack of liquidity
Compared to centralized exchanges, the liquidity in decentralized exchanges is much worse. This is due to the fact that traders are less likely to use DEXs due to various factors, making decentralized exchanges less liquid.
In the future, this can be overcome if DEXs have solutions that attract more traders, better UX/UI, support more types of transactions such as margin trading.
3. 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.
The nature of the DEX exchange
Before understanding the nature of DEX operations, I want to briefly talk about how centralized exchanges work first.
When using a centralized exchange, you have to transfer money from your wallet to the exchange's wallet. At this time, you have the right to use the property , and the floor has the right to own the property .
After that, you make orders to buy and sell coins. The floor's system will record your order and will process it to be matched.
Back to the DEX, when using a decentralized exchange, you create a wallet and hold the private key. This shows that you are taking ownership of your assets , not the exchange.
When executing a buy and sell order, it is essentially executing an order on the network, announcing that you want to sell or buy an amount of coins at what price. The transaction will take place when someone else accepts to buy/sell at that price.
Should Newbies Use DEX or CEX?
Really, if you are new to the market, you should use a centralized exchange (CEX) to familiarize yourself with basic trading and know how to buy and sell cryptocurrencies, how to secure your exchange account. .
After using CEX well, you should gradually switch to using and experimenting with large decentralized exchanges like IDEX or Binance DEX.
Reputable & popular decentralized exchanges
Currently, there are many decentralized exchanges on many different Blockchain platforms, most of which are still Ethereum.
Below is a list of 10 decentralized exchanges ranked by volume on Coinecko. You can refer to:
Top 10 DEX exchanges by 24h trading volume (Source: Coingecko - www.coingecko.com/dex )
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.
Therefore, decentralized exchanges are having a hard time attracting Traders to switch to using and trading on this type of exchange.
Hopefully, the strong development of DeFi in particular and the cryptocurrency market in general in the future will lead to the strong development of decentralized exchanges.
I believe that by this point, you must have understood the most necessary and basic information about decentralized exchanges, right? I want to hear what you guys think about the decentralized exchange in this cryptocurrency market. Don't hesitate to leave your comments at the bottom of the article!
Oct 05, 2022