What Is a DEX?

There are numerous crypto-native terms that you won’t hear anywhere outside the crypto world. A DEX or a decentralized exchange platform is one of them. For crypto newcomers, the expression can be quite puzzling because they might be unaware of the different types of crypto exchanges and services on the market.

In this article, we’ll take a look at the two main types of crypto exchanges and then focus on DEXs in more depth. 

Centralized Crypto Exchange Platforms

In order to understand what is a DEX, we need to take a look at centralized exchanges first. A centralized cryptocurrency exchange platform (CEX) is a platform owned by a single private company that manages the platform, makes the rules, and acts as a middleman in facilitating trading deals.

CEX platforms are a lot like banks because they are closed systems with centralized operational mechanisms and security. Also, when you store crypto on a CEX, you’re delegating custody over your assets to a third party, just like you would in the case of a traditional bank.

The main difference is that CEX platforms deal with crypto and provide users with technological solutions to buy, sell, and trade crypto with other users or with the platform itself. CEXs often offer a broad range of trading options, along with staking features, and some of the largest platforms even have their own NFT marketplaces. 

When you use a CEX, you need to create a user account on the platform and provide the exchange with personal data. Some platforms only require an email address or a mobile phone number, while others that comply with strict regulatory policies require users to provide extensive details such as their full name, address, and an ID document with a personal photo.

There’s no anonymity when using a CEX to trade crypto. All of your data is kept by the CEX and you don’t have full control over the security of your data and funds.

Also, in case the platform gets hacked or goes bankrupt, you might lose all of the assets in your CEX account. That’s why it’s advised to move your funds to a private crypto wallet once you’re done trading on a CEX.

On the other hand, popular CEX platforms invest huge funds in platform security, and some of them are much more secure than their decentralized alternatives.

Decentralized Cryptocurrency Exchange (DEX) Platforms

Decentralized crypto exchanges are based on an entirely different operational mechanism. A DEX platform is launched by a developer team, but in most cases, the team doesn’t own the platform because there’s no centralized control mechanism. 

Instead, the leading DEX platforms rely on decentralized governance models where the community gets to propose updates and vote on changes to the protocols based on the number of native tokens they are holding.

DEX platforms don’t require users to create accounts or provide any personal information. These platforms work as decentralized applications (dApps) to which users can connect their crypto wallet. When you visit a DEX, you just need to connect a compatible wallet to the platform through a smart contract and start trading on the exchange immediately.

Most decentralized exchanges act as blockchain gateways for specific blockchain networks. This means that instead of supporting a limited selection of cryptocurrencies, they allow users to trade numerous cryptocurrencies built on a specific blockchain.

For example, UniSwap, one of the leading DEX platforms on Ethereum (ETH), allows users to trade any ERC-20 token so long as there’s sufficient demand for that token and the platform has enough liquidity for it. 

With decentralized exchanges, you can simply copy a token’s contract address from CoinMarketCap and paste it into the correct field on the DEX’s interface. This will automatically add the missing token, provided it was launched on a blockchain supported by the platform.

Of course, not all DEXs have this option. A lot of them stick to a limited selection of top trending coins, just like CEX platforms, to keep safe.

Decentralized exchanges usually operate liquidity pools for different cryptocurrencies to provide sufficient liquidity for trading on the platform. Users can connect their wallets and participate in these liquidity pools by depositing their cryptocurrencies.

Users get rewarded with liquidity pool rewards for adding liquidity to the platforms. Also, some DEXs facilitate crypto loans and borrowing as an additional method for adding liquidity to the platform. 

Finally, a DEX doesn’t require users to reveal their identity, and they usually sign up for an account with their email. They don’t need to keep their crypto on the platform, either.

Leading DEX Platforms

Let’s check out some of the leading DEX platforms on the market according to trading volume. 

UniSwap

UniSwap is the leading DEX on the Ethereum blockchain. The platform lets you trade all of the popular ERC-20 tokens, plus it supports various additional networks compatible with Ethereum through the Ethereum Virtual Machine (EVM).

The list includes Polygon (MATIC), Optimism (OP), Celo (CELO), and Arbitrum. The platform has its native UNI token that functions both as a governance token and a tool for paying fees or receiving liquidity pool rewards.

The Pool section of the platform is where you can view all of the available liquidity pools and join one or more pools.

The Vote section is where you can vote on active governing proposals regarding the UniSwap platform. In the Tokens section, you’ll see the price, trading volume, and total value locked for the top cryptocurrencies on UniSwap. If you click on View More Analytics, you can view all the details of specific tokens and trading pairs.

PancakeSwap

PancakeSwap is the largest DEX on the Binance Chain network (formerly Binance Smart Chain). PancakeSwap also supports the Ethereum and Aptos (APT) blockchains, but the majority of traffic on the platform comes from BEP-20 tokens built on the Binance Chain.

PancakeSwap has numerous features that make it a true multi-purpose DeFi platform. When you go to the Trade section and click on Swap, you’ll be redirected to the PancakeSwap quick-swap interface, where you can trade lots of BEP-20 tokens, along with Ethereum and Aptos-based assets.

The Limit option lets you set a limit order to conduct a trade at a preset price. The Liquidity section allows users to add liquidity to many different trading pairs and earn 0.17% of all trading fees of the selected trading pair in proportion to their share of the liquidity pool.

Finally, the Earn section of the platform is where you can browse yield farms and liquidity pools. 

dYdX

dYdX is a highly popular DEX platform best suitable for experienced users with a high-risk appetite. Unlike some popular DEX platforms that act as blockchain gateways, dYdX is a DEX that supports a careful selection of trending cryptocurrencies.

You’ll find nearly 40 of the leading global cryptocurrencies on dYdX, including Bitcoin (BTC), Enjin Coin (ENJ), Stellar Lumens (XLM), Bitcoin Cash (BCH), Avalanche (AVAX), Ethereum (ETH), Cardano (ADA), Polygon (MATIC), Dogecoin (DOGE), and other popular cryptos. 

dYdX requires users to connect a crypto wallet and deposit their funds, except their funds aren’t kept on the exchange platform because DEXs are non-custodial. Instead, user funds are locked by immutable smart contracts until a trading deal goes through.

dYdX uses this operational model because it primarily focuses on crypto derivatives, such as perpetual futures contracts, which last for a specific period of time. For this reason, dYdX doesn’t operate as a classic spot trading or instant swapping DEX platform. dYdX is also great for leveraged margin trading, where you get up to 100x leverage.

The Portfolio section of the platform allows you to manage your assets and view your margins, collateral, leverage, and buying power. When you click on the Trade button, the platform will take you to the trading interface, which has a classic order book, a list of trading pairs, a price chart, and numerous technical analysis tools. 

In the Rewards section, you’ll receive monthly rewards in the platform’s native DYDX token. The number of tokens you’ll receive is calculated by dividing your total monthly fees by the total amount of fees paid by all users on dYdX during that month. 

The Competitions section of the platform allows users to participate in different competitions with other users in terms of profits/losses, trading volume, and asset balance. Just like most other DEX platforms, dYdX is governed by its users. 

Curve Finance

Curve Finance is one of the leading DeFi protocols on the market that operates one of the best DEX platforms in terms of liquidity. The platform is known for its huge choice of assets and a broad range of liquidity pools you won’t find on any other DeFi app. 

Curve Finance allows users to trade any crypto based on 10 different blockchains as long as the platform has sufficient liquidity for that cryptocurrency. The platform supports Ethereum, Polygon (MATIC), Celo (CELO), Arbitrum, Avalanche (AVAX), Fantom (FTM), Kava (KAVA), Gnosis (GNO), Optimism (OP), and Moonbeam (GLMR). 

Besides trading, Curve Finance is well-known for its crazy high selection of liquidity pools. When you click on the Pools section, you’ll be able to browse USD, BTC, ETH, and mixed crypto liquidity pools. You’ll see exactly which cryptos you can deposit in each pool, along with the pool’s APY.

Kine Protocol

Kine Protocol is an advanced DEX platform focused on crypto derivatives and perpetual contracts. Users can also engage in leveraged margin trading with up to 100x leverage. The platform has high-liquidity levels and allows users to deposit various cryptocurrencies, such as ETH, AVAX, MATIC, AVAX, and others, as collateral for perpetual contracts. 

When you connect your wallet to the platform, you can use the Buy Crypto option to purchase Tether (USDT) with a bank card and store it directly in your crypto wallet. You can use Tether as collateral for trading on Kine Protocol or swap it for other cryptocurrencies on the platform and use them as collateral.

Kine Protocol supports margin trading and perpetual contracts for 20 leading cryptocurrencies, including ETH, BTC, AVAX, DOGE, ADA, BNB, Near Protocol (NEAR), and 10+ additional altcoins with up to 100x leverage. 

DODO

DODO is a popular DEX platform with support for a wide selection of popular blockchains, including ETH, AVAX, OP, Arbitrum, MATIC, Binance Chain, Heco, BOBA, Moonriver, OKC, and Aurora. DODO allows users to trade any token based on the supported networks if there’s enough liquidity on the exchange. 

The platform is beginner-friendly and easy to use, thanks to its simplistic design. The Exchange section is where you trade assets by selecting the appropriate blockchain network in the top right section and your preferred trading pair on the swap interface.

Once you select a trading pair, you can see its price chart and trading volume on DODO. DODO has an integrated blockchain bridge feature that allows you to bridge cryptos between all of the 11 blockchains supported by DODO. 

ApolloX DEX

ApolloX DEX is the largest decentralized crypto derivatives trading platform on the Binance Chain. This platform is a good choice for traders who prefer perpetual futures contracts, as it has high-liquidity levels and a broad choice of contracts.

When connected to the platform, you can engage in limited spot trading features through the Spot section of the exchange. You can buy the platform’s native APX token, Hay (HAY), BTC, and Binance USD (BUSD) with Tether. Once you purchase some of these assets, you can use them as collateral for perpetual contracts on the platform.

The Futures section is where you’ll get exposure to perpetual contracts. There are more than 70 trending cryptocurrencies in the selection of futures contracts. Users can engage in futures contracts that include the likes of BTC, ETH, The Sandbox (SAND), DOGE, AVAX, MATIC, BNB, Solana (SOL), Polkadot (DOT), Ripple (XRP), and various additional cryptocurrencies.

The Pros of Using a DEX

• DEX platforms don’t require users to create platform accounts. You can connect your crypto wallet to a DEX and start trading right away without giving up sensitive personal information.
• DEX platforms often act as blockchain gateways that support any cryptocurrency on a specific blockchain if the platform has enough liquidity for that crypto.
• Most DEX platforms also provide users with additional DeFi services, such as staking, yield farming, or blockchain bridges.
• With DEX platforms, you can trade directly from your crypto wallet without transferring your crypto to your exchange platform account. This means that you’ll pay fewer fees because there aren’t any intermediary transactions involved.

The Cons of Using a DEX

• There are numerous decentralized crypto exchanges on the market but many of them have very low-liquidity levels and struggle to provide users with crypto trading deals at reasonable fees.
• Many DEX platforms have high slippage fees, which are fees users pay to fetch less liquid cryptocurrencies. Because of high slippage, users can sometimes end up paying much more for some less popular cryptocurrencies. That’s why it’s important to always use a DEX with high-liquidity levels.

Conclusion

Decentralized crypto exchanges offer more user flexibility compared to CEX platforms, and they don’t require users to create accounts or provide personal details. Because of this, many experienced crypto traders prefer to use a DEX and preserve their privacy while also avoiding high trading fees.

Additionally, most decentralized exchanges offer various DeFi features besides crypto trading, such as staking and participating in liquidity pools. However, beginners might find DEX platforms a bit complicated because they can’t deposit fiat currency and buy crypto directly with cash.