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What is DEX?

by Sonal Shukla

The popularity of cryptocurrencies is increasing along with the number of people investing in yuanpayteam.net. But as this popularity is growing, new terms keep coining. These new terms confuse the newcomers and amateurs in the cryptocurrency market. One such term is DEX. 

DEX is the abbreviation for Decentralised Exchange. It is a cryptocurrency exchange that permits uninterrupted peer-to-peer transactions of cryptocurrencies. It enables secure online cryptocurrency transactions and does not need an intermediary.

The archetypal third-party institutions that would ordinarily keep an eye on the safety and transfer of assets are switched by a blockchain in transactions made by the decentralised exchanges. These assets include banks, stockbrokers, online payment gateways, government entities, etc. Using smart contracts or order book relaying are some standard techniques of operation, but various other forms are possible and with diverging degrees of decentralisation. 

The decentralised exchanges lessen the danger of stealing from the hacking of exchanges because traders generally do not have to transfer their assets to the exchange before carrying out a trade. But liquidity providers do have to transfer tokens to the decentralised exchange. They can also stop price administration or forged trading volume by wash trading. They are more incognito than exchanges that execute know your customer or KYC requirements.  

There are a few indications that the decentralised exchanges have been undergoing fewer trading volumes and market liquidity. To resolve this issue, a protocol called 0x project was launched for building decentralised exchanges with replaceable liquidity. 

There are also certain disadvantages of the decentralised exchange or DEX. Users are baffled if they are ever hacked for their passwords because of a lack of ‘know your customer’ process and no way to revert a transaction. Even though liquidity pool decentralised exchanges are the most extensively used, they might have some disadvantages. Price slippage and front running are the most common issues with liquidity pool decentralised exchanges. 

The Automated Market Makers or AMM nature creates price slippage. It means that the strength of the impact on the price depends on how large the deal is. The issue is mainly important for large deals or small liquidity pools. 

Front running is an exceptional kind of attack on public blockchains when some member, after seeing an approaching trading transaction, puts his transaction ahead. It makes the inceptive transaction less profitable or even reverted at times. These members usually involve miners. 

A decentralised exchange can nevertheless have centralised parts. Through this, a little jurisdiction of the exchange is still reserved for the central authority. 

For connecting to a DEX, a crypto wallet can be used. You can interact with DEXs directly by pulling up the website on the web browser of your computer and clicking ‘Connect to a Wallet.’ You can also interact with them by using the built-in browser. You can scan the QR code that will pop up. Your wallet will be connected to the decentralised exchange after it is scanned. Now the only thing that you will need is a supply of cryptocurrencies to start trading on the decentralised exchanges. The need for cryptocurrencies is to pay the fees needed for any transaction that occurs on the blockchain. These fees are known as gas fees. What is noteworthy here is that this fee is different from the fees charged by the decentralised exchange itself. 

Fees differ from one decentralised exchange to the other. For instance, a 0.3 per cent fee is charged by Uniswap, which is divided between the liquidity of providers and the addition of protocol fees in the future. It is significant here that the fees charged by the decentralised exchange can be dominated by the gas fees. 

Coming up with a master plan to optimise returns from your trading ventures while keeping safety, comfort, and privacy is one of the thoughts that led to the designing of the decentralised exchanges. But, it is significant to know that decentralised exchanges won’t solve all the issues faced by the centralised exchanges. Traders would always have to keep in mind the problems that decentralised exchanges have of their own. Nevertheless, decentralised finance is developing, so the current drawbacks of DEXs might disappear with time. 

 

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