DEX

What is DEX?

DEX is the abbreviation of Decentralized Exchange, which can be translated as decentralized exchange. It is a platform running on the blockchain that allows users to trade directly without going through a central organization or third-party service provider. The working principle of DEX is relatively simple. It matches the orders of buyers and sellers through smart contracts and automatically executes transactions. According to different trading mechanisms, DEX can be divided into three categories:

Category	Trading Mechanism	Representative products
Order Book	Single book matching users	Uniswap、SushiSwap、Bancor
AMM	Facilitate users to complete transactions with liquidity through algorithms	Curve、Balancer、Quickswap
Hybrid	A mixture of the above two	0x、Loopring

Why does DEX appear?

The emergence of DEX is because traditional centralized exchanges (centralized exchanges, referred to as overclocking) have some problems that you cannot solve by yourself:

• Centralization: As a single point, in the event of a failure or regulatory closure, all user assets will be affected. Centralization: Centralized exchanges typically store crypto assets centrally on their platforms, making them easy targets for hackers and internal fraud.

• Opaque: Users’ encrypted assets are stored in CEX, which is not open and transparent and can only be seen by the exchange’s backend.

• Decentralized control rights: Not only do users have the right to use assets, but centralized exchanges can also control users’ assets, with risks such as misappropriation and theft.

Simply put, CEX has many security issues, which stimulated the birth of DEX. In addition, DEX can become popular and become a platform widely used around the world because of the Internet, anyone can easily access DEX through a wallet.

Advantages of DEX

In 2016, a trading platform called EthereumDelta was born, which meant the birth of DEX. So far, DEX has only been around for about 8 years, but it is very popular, mainly because DEX has many advantages and is very user-friendly.

• Openness and transparency: DEX runs on the blockchain, so all information is guaranteed to be open and transparent, including the number of users, the type and amount of assets in each wallet, transaction volume, etc.

• High security: Users have absolute control over their accounts and assets, and DEX developers have no right to interfere.

• Resistance to censorship: Usually DEX transactions do not require real-name verification (KYC), and neither regulatory agencies nor third parties can force inspections or stop users’ transactions.

• Freedom of trading: Most DEXs are not regulated by any government or agency, and anyone with access to the Internet can use DEXs to trade.

• Global accessibility: DEX is available globally, allowing users to trade from anywhere with an internet connection and a compatible wallet. This global accessibility removes jurisdiction-based restrictions, making it easier for users around the world to participate in the cryptocurrency market.

• Diversified asset selection: DEXs typically offer a wider variety of cryptocurrencies than CEXs, including smaller or less well-known projects. This diversity allows users to explore a variety of assets and discover new opportunities in the crypto space.

What is the future of DEX?

According to CoinGecko statistics, there are currently about 500 DEX platforms with a 24-hour trading volume of more than US$2 billion (CEX’s 24-hour trading volume of more than US$30 billion) and 120 million visits per month. Among them, the top three DEXs with the largest trading volume are Uniswap, Curve, and Pancakeswap.

Judging from the trading volume, DEX is currently far inferior to CEX. However, DEX has advantages that CEX does not have, and has great development potential. This is also what many CEX are afraid of, so they have to launch their own DEX, such as Binance launching Pancakeswap and Huobi launching Mdex.

Regarding the future of DEX, many professionals are optimistic about it. In 2021, Coinbase CEO Brian Armstrong believes that "DEX will become the mainstream of the cryptocurrency (Cryptocurrency) market in the next few years." Mike Novogratz, CEO of Galaxy Digital, predicts that DEX will grow more than 10 times in the next few years.