Decentralized exchanges are just what the name implies – cryptocurrency exchanges that operate in a decentralized way, meaning without any central authority. How it works is through peer-to-peer trading of cryptocurrencies.
DEX users do not transfer their assets to the exchange, reducing the risk of theft by hackers during exchange transactions. Experts also contend that DEX trading can prevent price manipulation or faked trading volume. Furthermore, DEX users do not need to conform to Know-Your-Customer (banking) requirements. Listed below are three examples of decentralized exchanges.
The Kyber Network
The Kyber Network is built for Ethereum-based tokens making them more liquid, scalable and more like to reach mass adoption. This means decentralized token swaps can be integrated into any application, providing a seamless exchange among all parties in the ecosystem. Kyber uses its own token, called KNC. With KNC, developers can build payment flows and financial apps, including instant token swap services, ERC-20 payments, and dapps.
The Kyber DEX does not use off-chain transaction matchmakers to provide liquidity. Instead, it uses smart contracts to manage reserve transactions. These reserves provide liquidity, and additional reserves can either be public or private. Private reserves are created by private coin holders who choose to act as a source of crypto for the exchange (and they set their own rates). But the public reserves can receive contributions from the public, and then the public market shares in the profits.
In a recent Coindesk article, Kyber Network CEO Loi Luu states that
What we observe is that most tokens are used only on exchanges for trading purposes or within their own specific platforms if the platform is live. Our main goal is to make tokens usable anywhere. With Kyber we aim to connect between ERC-20 tokens and use cases, so tokens can be seamlessly used for payments, as collateral for lending, investing in funds and so on. This will definitely create more use cases for tokens.
The Kyber DEX aspires to become an “engine for interoperability” among users seek to exchange value across blockchains (
Another DEX growing in popularity is OmiseGo, operating as a white-label
Using a cell-phone, the unbanked can get banking services via OmiseGo’s open-wallet infrastructure. This capability opens the door for providing services that are interchangeable with ACH, VISA, and PayPal. OmiseGo even provides access to various asset exchanges and derivatives.
The OmiseGo’s DEX is highly versatile. As one fan states,
OmiseGo isn’t just one thing. It’s a suite of products that bridge the gaps between the real world and blockchains. The DEX is the backbone where all transactions end up going through, it creates trade pairs between every listing on the DEX allowing for currency agnostic transfer of value. The Plasma child chains perform validation of these transactions, allow for cross-chain transactions, and act as a layer for scalability, which itself can scale to the point of handling all of the world’s transactions. (Its) white label SDK (software development kit) is an open source library allowing anyone to use the OmiseGo network. It’s not even just a payment network, it’s a new ecosystem…
OmiseGo even brings together various centralized and decentralized exchanges for users in one venue. It appears this DEX is seeking to be whatever one may want it to be.
A third DEX option is AirSwap, which just recently transferred the first security on a public blockchain. AirSwap is a peer-to-peer trading network built on Ethereum. It permits buyers and sellers to perform wallet-to-wallet trades through smart contracts, including such assets as luxury properties and real estate funds.
An AirSwap conducts transaction-fee free trading using its Swap Protocol, which settles orders on the blockchain via Ethereum smart contract. Everything else is handled independently of the blockchain (or off-chain).
By connecting traders off-chain, AirSwap claims its DEX is faster than other decentralized exchanges. Among its other advantages: it operates a global liquidity pool, its feeless (though this has trading bot implications), and market makers can trade on AirSwap’s peer to peer order books without having their orders publicly visible. However,
In the near future,
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The big advantage of decentralized exchanges is that the user is always in control. Decentralized exchanges free investors from having to wait on support tickets or worry about security safeguards. Their advent into mainstream trading will likely begin in earnest sometime next year. For now, traders remain heavily wedded to centralized exchanges. Expect decentralized exchanges to have a dramatic impact on cryptocurrency trading.