DeFi Part 2 — Decentralised Exchanges

DeFi Part 2 — Decentralised Exchanges

All hands on DEX

· A DEX is a peer-to-peer marketplace for digital assets

o similar to centralised exchanges such as Coinbase or can be likened to the New York Stock Exchange, except there is no intermediary clearing the trades

o DEXs execute trades though automated smart contracts

· The lack of an intermediary means DEXs are not required to follow Know-Your-Customer (KYC) or Anti-Money-Laundering (AML) regulatory standards

· DEXs do not custody your assets

o users retain custody of their digital assets

Introduction to DEXs

‘Freedom has a partner, and its name is responsibility’ — Seth Godin

The way we trade digital assets is evolving. True to the blockchain philosophy, DEXs have emerged to eliminate the need for a trusted intermediary. DEXs are taking us back to our roots of peer-to-peer marketplaces, something our forebearers might have referred to as ‘barter’. Luckily DEXs are much more efficient than bartering.

By utilising smart contracts, DEXs ‘swap’ your assets directly from your wallet.

Unlike centralised exchanges (such as Binance/Coinbase) where you deposit your assets, and the exchange holds your funds — DEXs utilise a non-custodial framework.

This means that you retain custody of your assets and are responsible for managing your wallets and private keys.

DEXs give users a smorgasbord of choices compared to their centralised counterparts. Projects almost always list their token on DEXs first, with some even skipping centralised exchanges altogether.

Centralised exchanges are gatekeepers that select a small number of tokens to be listed on their platform.

While gatekeepers help protect their users by filtering out scams or fakes, they also reduce consumer choice and stifle innovation. From a project’s perspective, DEXs are a great way to release a token to the market and bootstrap liquidity since there are no listing fees and the admission criteria is lenient.

The downside to the ease of listing and the abundant token choices, is that you’re more likely to find ‘untrustworthy’ tokens being listed on DEXs.

With DEXs you execute trades using the wallet which you hold the keys to. This comes with the risk that your keys could get lost or stolen and there is no customer support which you would otherwise get with Binance to help you recover your account.

DEXs are an exciting technology which gives us full control of our funds, allowing us to become sovereign individuals who can conduct transactions without oversight of a bank. However, with more freedom comes more responsibility.

Source: Blockchain24

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