Decentralised Exchanges (DEXs) are digital exchanges that allow peer-to-peer transactions within their marketplaces. Here, users can trade digital assets without the interference or dependence of a central authority. DEXs use smart contracts, which are built on various blockchain networks, to handle and carry out trades automatically. DEXs empower users to trade directly from their digital wallets, giving them greater control over their funds.
How do they work?
DEXs operate by establishing a decentralised network of nodes that confirm and carry out trades through smart contracts. By doing this, it minimises the chances of hacking or manipulation, which is often associated with centralised changes. With DEXs, users control their private keys and assets throughout the transaction process.
Today, there are hundreds of decentralised exchanges available in the crypto space. However, here are some popular DEXs below:
Other popular DEXs include KyberNetwork, 1inch Network, Curve, Pancakeswap, dYdX, 0x, etc.
1. Automated Market Makers (AMMs) Automated Market Makers, or AMMs, are decentralised exchanges (DEX). These DEXs use a system called liquidity pools, which can be described as collections of tokens provided by users of the DEX. These pools enable trades without the need for a traditional order book. Users can swap tokens from one pool to another or add tokens to a pool to earn fees or rewards. The price of each token in an AMM is determined by a smart algorithm based on the ratio of tokens in the pool. Uniswap, SushiSwap, and PancakeSwap are popular examples of AMM DEXs.
2. Order Book DEXs Order Book DEXs are another type of decentralised exchange. Unlike AMMs, they use a more traditional system with an order book. In this setup, users can place buy and sell orders at specific prices and quantities. Smart contracts match these orders when there is enough overlap. The price of each token is determined by the supply and demand in the market. Examples of order book DEXs include IDEX, 0x, and Kyber Network.
3. DEX Aggregators DEX Aggregators are a different type of decentralised exchanges. They don't operate on their own, but instead, they use smart contracts to bring together the best prices and liquidity from multiple DEXs. This way, when you trade using a DEX aggregator, your transaction gets routed to the optimal DEX, providing advantages like lower fees, faster execution, and better slippage. Popular examples of DEX aggregators are 1inch, Paraswap, and Matcha.
How To Use DEXs
To use a DEX, you will need the following: Before interacting with DEXs, it is essential to understand how DEXs work, including their advantages and risks involved. Use wallets like Coinbase, MetaMask, or Trust Wallet. These wallets interact with DEXs and store your cryptocurrency. Choose a DEX like Uniswap, 1inch, or Verse DEX. This is where you will connect your wallet and make trades.
Steps to follow when using any DEX:
1. Open DEX Website or App: Go to the DEX platform on your web browser or smartphone.
2. Connect Wallet: Click "Connect Wallet" and select your web3 wallet. Approve the connection on your wallet app.
3. Choose Tokens: Pick the tokens you want to swap. You can select from the list or enter the token address.
4. Adjust Settings: Modify slippage tolerance and transaction deadline if needed.
5. Review Details: Check the exchange rate, liquidity provider fee, gas fee estimate, and minimum received amount.
6. Click "Swap” and confirm the transaction on your wallet app.
7. Wait for Confirmation: Depending on network congestion, wait for blockchain confirmation.
8. Check Wallet: Verify the swapped tokens in your wallet and review the transaction on the blockchain explorer.
This article is for informational purposes only and not intended as investment or financial advice. It contains opinions and speculations that are subject to change without notice.
The author and publisher disclaim any liability for decisions made based on the content of this article. Readers are advised to conduct their own research and consult a financial advisor before making investment decisions.