Decentralized Exchanges (DEX) – What Are They? Top Picks For 2018
You've probably heard about DEX or decentralized exchanges, and this article explains how they work and discusses some of the best projects.
Are you tired of paying high fees to centralized exchanges like Bitfinex, OKEx, and Coinbase/GDAX?
Are you looking for a safer way to trade cryptocurrencies without the risk of potential exchange hacks?
Do you want to control your own private keys instead of giving access to centralized exchanges which can be hacked, going down with all your funds?
The solution: Decentralized Exchanges (DEX).
Remember the word ‘DEX’. This will become a buzzword all throughout 2018, especially in the second half of the year.
A Decentralized exchange (DEX) enables peer-to-peer (p2p) trading of cryptocurrencies without the need for any middle man or intermediary. It is completely open source with no one party in control. Decentralized exchanges promote trustless transactions, meaning you don’t need to entrust your cryptocurrencies to a third party service, custodian or intermediary. You maintain full control of your account and your digital assets. With DEXs, you can say goodbye to all the stringent KYC (Know-your-client) documents necessary with the current influx of centralized exchanges.
DEX vs Centralized Exchanges: Comparison
no fees, few have small fees
ID, KYC/AML, lengthy (sometimes takes weeks)
Single point of failure
Vulnerable to hacks, losses and theft
Lack of trust
Unsafe to execute large orders
Do not allow trading from hardware wallets
No single point of failure
Cannot be hacked
Safe to execute large orders
Some will allow trading directly from hardware wallets for safety
Not recorded on the Blockchain
Recorded on the Blockchain
You do not control your private keys
Requires user to be online
You control your private keys
Require users to be online, but some DEXs will have the ability to transact p2p offline
Tax and Regulation
Easier to trace, tax and regulate users, especially those trading on exchanges that accept fiat currencies.
Government may be able to obtain KYC info from exchange
Harder to trace, tax, and regulate users, as p2p doesn’t involve the current banking system or KYC protocols.
Server or System issues
High volume and price volatility cause instability or server crashes
Downtime due to system issues or upgrades
Increased traffic actually increases performance
No server issues to mention
Decentralized Exchanges are the future
Decentralized exchanges represent the next evolution of cryptocurrency trading, but are still in their nascent stages. Launching one is difficult on a technical level, expensive, and still requires a lot of development before we see mass adoption by the community. As with any exchange, each specific DEX will have its own pros and cons, but as far as centralized vs decentralized goes, it should be obvious that the latter is the one best suited for the shift to a decentralized economy.
It’s ironic that a decentralized technology fueled by cryptocurrencies, which was created to disrupt industries and give the power back to the people instead of centralized corporations and governments, is currently being traded mainly on centralized exchanges. The entire point of this new technology was to move away from centralized systems. Currently, over 98% of cryptocurrency exchange trading occurs on more than 180+ centralized exchange networks. That being said, most of the volume is dominated by big players like Binance, Bitfinex, OKEx and Upbit.
There are a lot of projects working on decentralized exchanges. Some are currently active and infant, with a lot of bugs to work out. These include liquidity issues, unoptimized interfaces, complex trading mechanics, lack of margin trading, lending, & stop loss orders, along with the primary issue being scalability. Interoperability is also a key catalyst for mass adoption of DEX in the crypto community.
This opens up a new industry for hybrid exchanges, called HEX. These will essentially be a transitional form of exchanges that take the best of both worlds. A HEX uses decentralized architecture for control of your funds and a centralized database for matching transactions on the market dynamically. When a transaction is finalized, it is then published on the Blockchain.
There is a rise in hybrid exchanges and development, at least until we can reach the utopia that is comprised of completely decentralized peer to peer trading.
This is all proof that we are in the early stage of DEX development and there are growing pains, but firms and leaders in Blockchain are focused to resolve the issues at hand. There are other projects that are still in development and working to bring a great DEX experience to market later this year. It will take some time for us to get there, but DEXs are the future of trading. Centralized exchanges will not disappear completely due to the ability to exchange fiat to crypto, but will play an ever decreasing part of the crypto economy, as DEXs plow full steam ahead.
Top Decentralized Exchanges in 2018
Note: Please Do Your Own Research (DYOR) and due diligence before trading any cryptocurrency on any exchange, centralized or decentralized. None of the content in this post is to be construed as financial advice and neither the author, nor the publication take any responsibility for the information or any decisions made using it.
Below are some of the picks for potentially successful Decentralized Exchange (DEX) projects either available right now, or with development currently underway.
#1. OmiseGO (OMG)
OmiseGo is one my top picks for 2018. They are one of the leaders in DEX at the moment I believe, with a strong team and community following. OmiseGO (OMG) is building a DEX that enables consumers and businesses to transact in any currency they choose. The ultimate p2p or b2b network connected to the Ethereum mainnet, the OMG Blockchain is a decentralized exchange, digital wallet, liquidity provider mechanism, clearinghouse, and asset backed blockchain gateway. Imagine conducting payroll deposits, B2B Commerce, remittances, financing and trading, all on one platform.
One of the pioneers paving the way for mass adoption, OMG has a strong team and an even better advisory board with the likes of Vitalik Buterin (Co-founder of Ethereum), Dr. Gavin Woods (Co-founder of Ethereum and founder of Polkadot and Parity), and Joseph Poon (Co-author of the Lightning network) to name a few.
#2. 0x (ZRX)
One of the strongest DEX projects in my opinion. It is an open source protocol that facilitates the exchange of ERC-20 tokens on the Ethereum Blockchain, utilizing relayers. It also enables on-chain settlement of off-chain order books. Key advisors are Fred Ehrsam (Founder of Coinbase) and Joey Krug (Founder of Augur)
#3. KYBERNETWORK (KNC)
A DEX that will allow for the instant conversion and exchange of digital assets, cryptocurrencies, crypto-derivatives trading, and API for payments. Similar to 0X, KNC doesn’t use relayers and instead performs all transactions on the Blockchain. One of the strongest teams lead by Loi Luu and Yaron Velner. Top advisor on this project, is the one and only, Vitalik Buterin (Co-founder of Ethereum).
#4. WAVES DEX
Decentralized exchange used to conduct peer to peer transactions, built on the Waves Blockchain (based on Proof of Stake). Waves DEX uses matcher nodes to pair orders on a centralized basis and could be considered a hybrid exchange (HEX).
#5. NEX (Coming Soon)
A Decentralized Exchange and payment service built on the NEO Blockchain. NEX offers off-chain matching similar to 0x, which enables faster and complex trading to take place seamlessly. This is one of the strongest DEX projects on the NEO Blockchain, with a solid team, lead by Thomas Saunders (Co-founder of Coz and creator of neo-python), and few advisors from the NEO Council. There is no whitelist, no presale, all we know is that its ICO will start soon so follow them for updates.
Built by Bitshares utilizing Graphene technology, Openledger is a Bitshares web wallet with a built-in DEX. It utilizes user-issuer assets to trade on the exchange and also allows users convert their cryptocurrencies into smartcoins. This project is backed by some heavy hitters including IBM, Intel, Wells Fargo, and JP Morgan to name a few.
Other common mentionable projects include: Loopring, Bancor, OmegaOne, Barterdex (built on the Komodo Blockchain, Airswap, and Stellar Distributed Exchange (built on the Stellar Blokchain).
I personally have no doubt that 2018 will be a big year for DEXs and will signify a huge shift in the industry. With all the restrictions, shutdowns, bans, and registration issues that were prevalent with centralized exchanges recently, it is a welcome changed by the crypto community. Most DEXs will rely on multi signature wallets and atomic swaps to facilitate peer to peer trading. If you’re interested in learning more about atomic swaps, you can read our post here.
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