Trading cryptocurrency on decentralized exchanges is the next stage (DEXs).
This post will conclude our discussion on the issue for the time being since we have previously covered advanced concepts like Yield Farming, staking, and NFTs. We’ll return to DAOs and cutting-edge technologies later.
So let’s done our thinking caps and get to work!
What Is A DEX, First?
A DeFi protocol without a working central authority is known as a DEX, or decentralized exchange.
In other words, it is quite similar to a fruit market where buyers and sellers trade specific fruits for a predetermined price.
The difference between this and a centralized exchange should be your next inquiry, and the response is as follows:
You don’t need to create an account at the market’s entrance in order to purchase fruit from your neighborhood market. You move quickly through. A DEX is the same way. No account needs to be created.
Similar to this, you don’t need to establish your identity in order to purchase fruit at your neighborhood fruit store. KYC is not a worry for the seller or the organizer of the fruit market. A DEX is the same way.
It’s interesting to note that you do not need to leave cash at the entry or use a cash ticket to purchase fruit at your neighborhood fruit market. You pay a seller directly by carrying cash in your wallet at all times. A DEX with a P2P (Person to Person) layer operates similarly (More on this later).
A DEX is, in other words, a decentralized market. no central government. just sellers and buyers.
DEX Types 2.
2.1. P2P
Early DEXs relied on a P2P layer as their foundation. For the coins they planned to exchange, they envisioned markets where buyers and sellers might deal at mutually acceptable values.
However, the sector understood that this brought up the issue of barter, i.e.
I should be willing to exchange something I need for something I can sell to someone else. In economics, this problem is known as the “double coincidence of wants.”
Liquidity pools were a novel method devised by DeFi enthusiasts to address this issue.
2.2 Dex With Liquidity Pool Backing
Briefly stated:
You want to generate passive income from your investment in $WBTC ($BTC on the Ethereum network);
We each contribute a portion of our holdings to a liquidity pool that will sell $ETH to persons moving out of their $WBTC positions and sell $WBTC to people looking to buy $BTC;
We shall be compensated by the protocol in the form of trading commissions for locking up our holdings in a liquidity pool;
Additionally, the protocol will also issue LP tokens that represent our ownership interest in the pool in exchange for locking up our assets. These LP tokens might be staked to generate more passive income or collateralized to acquire more money for the purchase of new coinage.
Liquidity pools prevent double coincidence of wants as a result. Thus, trading is made possible instantaneously and without a centralized authority.
But in reality, most DEXs function in a mixed fashion. Through the P2P layer, you may either wait for a partner to join you in a trade or trade right away by using the liquidity pool.
Does A DEX Actually Not Need KYC?
Yes. You won’t be asked for your KYC details by a DEX. Your wallet simply plugs in and works. Remember that it is a fruit market after all.
But that does not mean you should start your criminal career here—or anyplace! This piece on KYC might be helpful to you, and I will go into more detail about it below.
The fact that a blockchain is public is something that plenty of people miss. This implies that your wallet address will be posted along with the history of your transactions on Etherscan, such as those made on an Ethereum-based DEX.
In fact, the blockchain’s open nature assures that a money trail is available and that all you need to have is your identity. You’ll be forced to leave your den after your wallet is blacklisted.
The blockchain’s open nature has shown to be incredibly useful for law enforcement, and the greatest thing is that the sector as a whole is still working together on this issue. It makes sense that only 0.15% of cryptocurrency transactions are thought to be illegal.
4. What Popular DEX Protocols Are There?
There are thousands of DEX protocols on each blockchain. They are all uniform in their fundamental utility and thus one group.
According to CoinGecko, Uniswap has a substantial market share and is the top exchange. The PancakeSwap organized by the Binance Chain comes in second.
DEX
The whole list, which is updated every day, is available on the CoinGecko website.
Conclusion
Despite the widespread use of centralized exchanges (CEXs) and the predominance of the CeFi experience, DeFi is steadily gaining ground.
Growth in DEX volume is fiercely competing with CEX volume. This is due to a variety of factors, including the fact that the decentralized market is the only place where many new products and assets are now available.