Cryptocurrency is impossible and incomplete without decentralized exchanges as they are an important platform for trading different cryptocurrencies. However, many cryptocurrency beginners don’t understand the value of DEX and what power it holds. So, with this article, we are sharing more about DEX!
DEX is the short form of decentralized exchanges, and to illustrate, it is the peer-to-peer marketplace where the transactions are conducted directly between different crypto traders. These exchanges are responsible for fostering and implicating the financial transactions that are not induced and authorized by brokers and banks, or some other intermediaries.
In the majority of cases, the popular decentralized exchanges operate on the Ethereum blockchain.
In addition, the DEX has become a growing part of the decentralized finance tools, also known as DeFi. Given this system, the decentralized exchanges have a various range of financial options available from the associated crypto wallets or the kinds of bitcoin wallets.
It wouldn’t be wrong to say that decentralized exchanges are booming, and according to research, $217 billion worth of transactions were recorded through DEX platforms during the first quarter of the year 2021. In addition to this, by the year April 2021, more than 2 million decentralized finance traders, which showed 10x growth as compared to growth standards in May 2020.
How Do The Decentralized Exchanges Work?
The decentralized exchanges do not allow the exchange between cryptocurrency and fiat currency. On the other hand, the DEXs help with exclusive cryptocurrency trading for another cryptocurrency.
As far as the centralized cryptocurrency is concerned, the users are allowed to trade the fiat currency for cryptocurrency, or they can also trade in the crypto-crypto pairs. In addition, decentralized exchanges allow the users to make advanced moves, such as setting the limit orders and margin trades.
However, as far as the transactions are concerned, they are handled through the exchanges with the help of an order book – the order book establishes the value, price, and cost of a specific cryptocurrency depending on the current sell orders and buys orders, which is the method similar to stock exchanges.
To illustrate, the decentralized exchanges deliver a combination of smart contracts. These exchanges can identify the prices of different cryptocurrencies through algorithmic ways.
In addition to this, the decentralized exchanges utilize the liquidity pools where investors have the ability to lock their funds and gain rewards just like interests (it is done for facilitating trades). The decentralized transactions are recorded and settled on the blockchain rather than on the internal database.
These decentralized exchanges are formulated on the open-source code, which means everyone can check out their activities. It also means that the blockchain developers will be able to adapt the current codes for creating the new projects.
The Benefits Of Using DEX
Let’s discuss some important benefits of using DEX:
● Extensive Variety
If you are someone who is trying to look for the hot and buzzing tokens in the immature form, DeFi is the right choice. This is because decentralized exchanges offer an extensive or, may we say, limitless variety of tokens in the virtual form.
This happens because everyone has the ability to mint the tokens and create liquidity pools for supporting them. For this reason, you will be able to access a variety of projects, including the unvetted and vetted projects.
● Reduced Hacking Issues
Since decentralized exchanges are stored on the personal wallets of the traders, it means that there will be lower chances of hacking. In addition to this, decentralized exchanges will reduce the counterparty risks, which means that every account and token associated with yours will be safe from hacking attempts.
When it comes down to using decentralized exchanges, you will not need to provide personal information for verification processes. It means that no one will have access to your tokens or your personal information.
● A Reliable Utility
When you opt for decentralized exchanges, it delivers various utilities, including quick and efficient transactions and peer-to-peer lending. For this reason, decentralized exchanges have gained popularity in developing countries, especially when there is no banking infrastructure.
In simpler words, all you need is the smartphone and wireless connection to sign up for DEX and trade.
The Bottom Line
To summarize, DEX is the ultimate choice for crypto traders and investors who want more freedom and anonymity while juggling digital currencies.