When cryptocurrencies were first launched, it took a lot of work for users to exchange them. There were some platforms where you could buy Bitcoin, but few allowed crypto holders to trade their coins with different altcoins. As more exchanges were developed, they were centralized exchanges. This meant that a single entity controlled the exchanges, and users would have to trust 3rd parties to secure their funds. Today, secure decentralized exchange planforms have accelerated trading potential!
Nowadays, decentralized exchanges (DEXs) provide a much safer solution for crypto holders looking to trade without relying on centralized authorities. A DEX is a platform where users can exchange cryptocurrencies without going through an intermediary. This way, users can change without relying on a centralized authority. In this report you will find a glimpse into the workings of a decentralized exchange.
What Is A Decentralized Exchange
A decentralized exchange is like a peer-to-peer network where users can buy, sell and trade cryptocurrencies. These exchanges run on blockchain technology, which provides greater security. Because the platform is decentralized and there is no custodial entity between the buyer and the seller, the user remains in control of their private key.
Decentralized exchanges use a smart contract on each transaction carried on the platform. These self-executing contracts coded in the blockchain allow users to carry out transactions without a third party. DEX platforms have opened up to the development, exchange, and trading of decentralized finance, an emerging form of financial technology.
Most DEX platforms don’t follow Know Your Customer (KYC) and Anti-Money Laundering (AML) protocols because of a lack of counterparty risk. This means the platforms don’t carry the risk of users not being able to access their accounts due to legal reasons or credit default.
The Safest and Most Secure Decentralized Platforms
As the need for more decentralization in the crypto exchange market continues to rise, more DEX platforms will be launched. While many options are available, some decentralized exchanges have different security features and user experiences. Here’s a list of some of the top decentralized crypto exchanges to try out:
Uniswap
Uniswap is a decentralized exchange protocol that allows users to trade Ethereum-based tokens directly with each other. It uses an automated market maker system which makes trading fast and easy. The platform also offers built-in liquidity pooling, making it more secure than most DEXs.
Uniswap allows the exchange of over 5500 tokens, such as DAI, USDT, USDC, and ETH.
Uniswap runs two types of smart contracts Exchange and Factory contracts. The exchange contracts manage each pair’s token swaps and liquidity, while the Factory contract creates new token pairs. It has an automated liquidity protocol to solve liquidity problems by incentivizing people to become liquidity providers. The Liquidity providers will stake Uniswap tokens and receive a portion of the trading fees.
To solve the problem of the price of tokens on the exchange, Uniswap uses an automated Market marker. This is where the platform increases or decreases the price of a token depending on the token trade volume being traded.
Kyber Network
On the Kyber Network, a decentralized exchange, you can swap tokens securely and quickly. The platform has an easy-to-use interface which makes it ideal for beginners looking to enter the crypto market. It also supports over 70 coins and tokens, with more added daily.
Kyber Network offers a liquidity protocol that allows users to trade different tokens without worrying about the market’s liquidity. This makes it one of the most secure DEXs as it ensures that there is always sufficient liquidity available for trades. The platform also has a reserve system that enables token holders to become part of Kyber Network’s liquidity pool.
The platform also offers an easy-to-use interface and comprehensive documentation to help users understand how the exchange works. It also has a secure wallet system with two-factor authentication, ensuring user accounts remain safe from hackers.
0x Protocol
The 0x Protocol is an open-source protocol that enables peer-to-peer trades of ERC20 tokens on the Ethereum blockchain. The protocol offers advanced security measures, such as a decentralized order book, allowing users to place and fill orders securely. It also has a suite of tools that make building decentralized trading applications easier.
The 0x protocol combines a hybrid off-chain and on-chain settlement protocol. In the hybrid system, 0x can tap beyond on-chain liquidity. It uses two protocols:
- Takers: Which are users who take orders from the order book.
- Makers: Users who place orders on the order book.
The 0x protocol also has a built-in token called ZRX, which allows users to access advanced features such as decentralized governance and staking.
SushiSwap
SushiSwap is a decentralized exchange platform built on the Ethereum blockchain. It allows users to swap tokens directly with each other without the need for intermediaries. The platform has a unique token called SUSHI which allows users to stake their tokens and receive part of the trading fees from traders who use the platform.
The minimalistic design of SushiSwap is built on the source of UniSwap and is crafted to enhance user experience. The platform also features a liquidity mining feature that rewards users with SUSHI tokens for providing liquidity to the pool. The SushiSwap protocol also allows users to earn passive income from staking their tokens in the platform’s native token collections.
The SushiSwap pool has security protocols and governance that ensure every trader gets the best deal on each trade. The platform also has an advanced order routing and matching algorithm that ensures users get the best prices for their trades.
PancakeSwap
PancakeSwap is another decentralized exchange platform aiming to simplify cryptocurrency trading. The platform is native to BNB Chain and focuses on BEP20 tokens. However, it works like other DEXs, allowing users to trade tokens without worrying about security and intermediaries.
PancakeSwap features an Automated Market Maker that automatically increases or decreases the price of a token based on the liquidity of that token. The platform also supports multiple asset trading and has a built-in decentralized order book with an easy-to-use interface.
As one of the most secure DEXs, PancakeSwap also allows users to provide liquidity to the platform through the staking of the platform’s native tokens.
Additionally, users can also earn CAKEs through Yield Farming. This is a process where users earn passive income by holding the platform’s native tokens in their wallets. The farms act as staking pools that benefit both the provider and the receiver of services.
The PanckeSwap Exchange boasts the following features:
- Advanced security protocols,
- Easy-to-use interface
- Comprehensive documentation.
PancakeSwap has risen to be one of the most trusted decentralized exchange platforms today.
1inch
1inch is a DEX exchange aggregator that scrapes and collects data on different DEX platforms. The platform also offers real-time price analytics and shows traders the best and lowest prices. It uses the 1INCH utility token for governance on the platform to facilitate liquidity mining and the instance governance model used on the platform.
1 inch works to deepen liquidity and reduce slippage. Typically, slippage occurs when there’s an insufficient trade volume, resulting in traders paying more for an asset than they previously planned or selling an asset for less than the market price.
With its advanced trading tools, real-time analytics, and deep liquidity, 1inch is another of the highly trusted decentralized exchange platforms today. Whether you are a novice trader or an experienced cryptocurrency investor, you’ll find everything you need on this platform to get started crypto trading. For example, the v2 of the 1-inch protocol launched in November 2020 allows users to make swaps across 21 DEX platforms. This helps to reduce slippage and price volatility across the decentralized exchange Network.
Compound
The compound is a decentralized exchange platform that allows users to tokenize assets locked on its platform. It uses cTokens, enabling users to control, trade, and stake their assets on the exchange. The cTokens exist in a cToken pool that backs all tokenized assets on the DEX. For example, if you want to get USDC from the platform, Compound allows you to tokenize it to cUSDC. You can earn interest from the platform after locking your cUSDC and convert it back to USDC anytime, including any interest you’ve earned.
The Compound offers advanced features such as token lending, instant market deposits, and collateral swaps with real-time price analytics for all tokens. The platform allows users to transfer and withdraw tokens in real time with transparent audits and complete control over their funds.
With its comprehensive features and deep liquidity, Compound has emerged as a leader of decentralized exchange platforms today.
Curve Finance
Curve Finance is a decentralized exchange platform designed specifically for swapping stablecoins and tokenized forms of the stablecoins. It also acts as a decentralized liquidity aggregator where users can swap stable coins as long as there’s liquidity on those specific coins.
Unlike other DEX platforms, Curve finance focuses on stablecoins, which means it’s easier to find liquidity on the platform. It also uses an Automated Market Maker protocol to ensure that there’s always a constant flow of orders on the platform and to provide better pricing for traders.
As curve finance uses smart contracts, trades can occur without a counterparty, and users retain complete control over their funds. The platform also offers real-time price analytics, transparency, and complete audits to ensure that trading is fair and secure.
Additionally, the liquidity pools provided by the exchange allow you to buy or sell your stablecoins at any time, even without a buyer or a seller at the other end of the deal. However, as earlier mention, trading an asset is only possible if the liquidity of the same asset is still available.
To ensure the liquidity of assets on the exchange, Curve finance uses its native token, CRV, to incentivize liquidity and stability on the platform. The CRV token also allows users to stake their tokens, earn interest, and borrow tokens from the platform.
What To Look For In A Decentralized Exchange
With so many decentralized exchange platforms available today, choosing the right one for your needs can be difficult. Here are some key factors to look for when deciding which DEX platform is best for you:
Liquidity and transparency
One of the most important things to look for in a decentralized exchange platform is liquidity and transparency. The more liquid an exchange platform is, the easier it will be to trade on and find buyers or sellers for your assets.
It’s, therefore, important to look for a platform that provides liquidity pools, as these pools can help to ensure that there’s always a buyer or seller available for your assets. If users are encouraged to stake their coins, they become tradable.
Advanced features and security
Another important consideration when choosing a Decentralized Exchange platform is whether it offers advanced features such as token lending, instant market deposits, collateral swaps, real-time price analytics, and complete control over your funds. In addition to these features, you should also look for a platform that provides high-level security to protect your assets.
Luckily, most DEX platforms use smart contracts to achieve these advanced features, adding an extra layer of security to the platform.
The Decentralized Exchange community
When choosing a decentralized exchange platform, it’s essential to look at the wider community that uses and supports it. The more active and engaged the community is on the platform, the easier it will be to get help and support when needed.
User experience
It is also important to consider the overall user experience. The platform should be easy to use and navigate, with intuitive interfaces that allow you to trade your assets efficiently. You may find a DEX platform challenging if you have used a centralized platform before. So, look for those with minimalistic designs to help you in your trading journey.
Coins supported
As a crypto trader, you want access to as many coins as possible. The more coins you have access to, the easier it will be to diversify your portfolio and maximize your profits. To find a decentralized exchange platform that supports many different coins, consider checking out sites like CoinMarketCap or CryptoCompare to see which platforms offer the broadest range of assets. However, as much as you might want access to a wide variety of coins, first ensure they have strong liquidity, as you don’t want to be stuck with untradable coins.
Recommended Decentralized Exchanges
While we have focused on Decentralized Exchange platforms in this report. We do not actively recommend or personally use the exchanges listed above. We provide their review for your information.
The Exchange that I most recommend is Coinbase. While Coinbase is not a decentralized exchange they do offer decentralized solutions. Coinbase, in my opinion, is the most secure option. I have found that most of the time if Coinbase does not offer a particular coin token. There probably is a good reason and I do not want to trade it after all.
I do recognize, however, that some traders like high-risk tokens. For those, I recommend Binance which I also use for diversifying my accounts.
Conclusion
Decentralized exchange platforms are an essential tool for any trader. Their peer-to-peer protocols eliminate the need for a central authority, reducing the need for counterparty and limited trades or high fees. Therefore, the key to choosing the right DEX platform is considering factors such as liquidity, security, and user experience. Doing so can ensure that your assets are always protected while maximizing your trading potential. So, thoroughly research different platforms before deciding on one that best fits your needs.
