Decentralised exchanges also known as DEX are peer to peer market place where cryptocurrency traders can make direct transactions. These transactions are facilitated by using self-executing agreement which are written as smart contracts.
DEX liquidity is there in the decentralised exchange. This exchanges were created to remove the requirement of any authority in the middle. Decentralised exchange offers peer to peer trading. Peer to peer is a marketplace that links and sellers of cryptocurrencies. Private Key with advanced encryption are used to access the cryptocurrencies. Users can view their crypto balance after logging in DEX using their private keys.
They do not need to submit any personal information like names and address and it good for them who cherish privacy. Innovations has solved liquidity related problems and has helped attract users in decentralised finance. DEX aggregators and wallet extension has fuelled the growth of decentralised platforms by optimising token prices, swap fees and slippages.
Decentralised exchanges works upon smart contracts which allows traders to execute trade without involvement of intermediary. Centralised exchange managed by centralised organisations like banks. Centralised exchange accounts vast majority of volume because they are regulated by the custody users fund and it offers easy to use platform for new comers.
The services which are offered by centralised exchange can be compared with bank. The banks keeps it client safe and provide security and surveillance and any individual cannot do independently. Decentralised exchange allows users to trade directly from the wallets using smart contracts. Traders guard their fund and responsible for if they lose them. The customers deposited funds can trade freely on network. Popular decentralised exchange have been built to support smart contracts.
Decentralised exchanges are built on blockchain networks and supported by smart contracts. There are three types of decentralised exchanges –automated market makers, order book DEXs and DEX aggregators. This system allows users to trade directly with each other through smart contracts.
An automated market maker was created to solve liquidity issues. The AMM rely on blockchain based services which provide information on the exchange. The smart contracts are prefunded by liquidity of pools. The liquidity pools allows users to execute orders to earn interest in trust less way.
Order books compile and records all open order buy and sell assets. Buy order signify that a trader is willing to buy and sell order indicates that the trader is ready to sell. The spread determines the depth of the order books.
DEX aggregrators use different protocols to solve problem with DEX liquidity. These platforms aggregate liquidity from several DEX s to minimise slippage of orders. It optimise swap fees and offers traders best price in the shortest time.
Decentralised exchange are expensive if network transaction fees are high. It offers various benefits. Decentralized exchange can include any token minted on blockchain that it was built upon. The anonymity is well preserved in this exchange. Users do not need to go for KYC. Less chance of hacking using DEX as it works without any intermediary.