A few weeks ago, the incident at broker Robin Hood sparked horror. Robin Hood, who actually represents the democratization of financial markets, temporarily halted trading of some stocks after many investors rallied to raise Gamestop’s share price. This is a problem that the DeFi trading platform solves.
DEX has made great progress in recent years and is now an integral part of the DeFi space. But how does DEX work, and what’s important to consider?
Decentralized Exchanges (DEX) have gained popularity not only since the hype of decentralized financial products (DeFi). But the rush to the Uniswap decentralized exchange reignited the debate about the pros and cons of both decentralized and centralized exchanges (CEXs).
Many crypto enthusiasts believe that the market share of decentralized exchanges can increase significantly in the future. And many established crypto exchanges are also working on decentralized versions of their trading platforms. Reason enough to look at the characteristics of the different types of exchanges. Will crypto trading really become fully decentralized in the future?
CEX — Centralized Exchanges
Centralized exchanges, such as Bityard, have their own order book. In this case, each order is recorded and validated. To ensure correctness, data is exchanged internally through dedicated servers and through a centralized security process. As a rule, CEX operates under regulatory oversight and has an extensive know-your-customer policy within it. Simultaneously, centralized exchanges actively crack down on fraudsters following applicable laws to prevent money laundering. Beginners especially use this type of exchange, as the centralized structure allows for a user-friendly platform that makes buying and managing digital currencies very easy.
Order and transaction volumes are usually much higher than on DEX. This is also because network nodes do not need to be updated in real-time. As a result, the trading speed is very high. However, the simplicity of the platform described earlier requires that the private keys of the integrated wallet remain on the exchange. Hence, access to crypto assets is directly linked to user credentials. If fraudsters gain access to credentials through phishing or hacking, they will have direct access to the stored crypto assets.
Behind CEX is a not-for-profit company. In order to create a good user experience, these companies often offer various support services. They also allow buying of cryptocurrencies against fiat currencies and usually feature a wide variety of trading pairs. Centralized exchanges have fixed fees, which are incurred during trading. Conceptually, crypto exchanges work on the same principles as other exchanges. The matchmaking algorithm manages supply and demand, and the order book stores the user’s orders.
Newcomers to cryptocurrencies in particular value convenience. In the beginning, trading and choosing the right platform can be very rewarding in the long run. In such cases, it is best to start with a reliable multi-certification platform. The simple interface makes trading relatively easy. These are just some of the advantages you will get with Bityard. Just give it a try and see for yourself the advantages mentioned above. Start your investment now!
Centralized vs. decentralized exchanges
The first important difference between centralized and decentralized trading platforms is that you don’t need to register for a DEX, and you don’t need verification (called KYC). DeFi trading usually takes place directly between the wallets of two users. Rewards often incentivize users to provide tokens in so-called liquidity pools to ensure DEX liquidity and avoid large price fluctuations.
DeFi exchanges also take us an important step towards independence: with a centralized platform, you have to trust the exchange with your money, but with DEX, transactions happen on the blockchain, and funds are allocated to users in their own database. There’s nothing holding user funds, so you don’t have to give up control at any time.
DEX – What decentralized exchanges are out there, and how do they work?
In the past year, DEX has sprung up like mushrooms. However, perhaps the most famous DEX is Uniswap.
At Uniswap, there is no order book or centralized party to make trades. Uniswap allows users to trade without intermediaries, with a high degree of decentralization and censorship resistance. DeFi Exchange is based on a decentralized exchange protocol built on top of Ethereum. Uniswap operates on a model where liquidity providers create liquidity pools.
As such, Uniswap is abandoning the traditional architecture of digital exchanges. It works with the Constant Product Market Maker design, a variation of the model called Automated Market Maker (AMM).
Automated market makers are smart contracts that hold pools of liquidity that traders can exchange. Liquidity providers fund these reserves. Anyone can become a liquidity provider who deposits the equivalent of two tokens into the pool. In return, traders pay a fee to the pool, which is then distributed to liquidity providers according to their share of the pool.
Stuttgart-based DeFi Startup is a DEX that compares the prices of various decentralized exchange platforms, allowing users to trade at the best prices. Swaps can also be shared between different DeFi platforms to get the best price. For this purpose, 1Inch uses different DeFi trading platforms like Uniswap, Kyber Network, Balancer Co.
Advantages and disadvantages
What do I get from buying on a decentralized exchange?
KYC/AML (Know Your Customer and Anti-Money Laundering) compliance is the norm on many exchanges. For regulatory reasons, individuals are often required to provide identity documents and proof of address. On the other hand, DEX is accessible and anonymous to everyone. All that is required to exchange on DEX is a crypto wallet.
Token not registered
There is no logging process on the DeFi platform. Basically, any ERC-20 token can be launched as long as there is a liquidity pool for traders. So tokens that are not listed on the central exchange can still be traded freely on the DEX, as long as there is supply and demand.
No partner risk
The main attraction of DEX is that they have no client funds. Hacker attacks, which are more common on centralized exchanges, cannot harm users, and sensitive personal information does not have to be disclosed.
What are the disadvantages of a DeFi exchange?
With each step towards independence, user ownership also increases. For beginners, centralized trading platforms offer a more forgiving solution. If you forget your password, you can reset it easily. However, if you lose your seed phrase or private key in the DeFi area, the funds will be lost and the account will not be able to be recovered. Therefore, it is even more important to be responsible with your private keys and passwords in the DeFi area.
Newcomers to cryptocurrencies in particular value convenience. In the beginning, trading and choosing the right centralized platform can be very rewarding in the long run.
In such cases, it is best to start with a reliable multi-certification platform. The simple interface makes trading relatively easy.
These are just some of the advantages you will get with Bityard. Just give it a try and see for yourself the advantages mentioned above. Start your investment now!
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