What is a DEX? Generally speaking, DEX means an online platform where users can trade various types of cryptocurrencies for each other. On the surface, they seem really similar to traditional exchanges, but when going deeper into their workings, some key differences become obvious. For instance, while the majority of Centralised Exchanges (CEXs) and some decentralized ones provide peer-to-peer trading, most of the DEXs offer trading against automated liquidity pools—these are essentially significant sums of various cryptocurrencies locked by actual holders in return for yields. Also, while most CEXs allow users to exchange traditional fiat currencies (e.g., GBP, USD, EUR) for cryptocurrencies, DEXs tend to only support the crypto-for-crypto option.
Why are DEXs important?
Thanks to their user-friendly interfaces and global accessibility, DEXs, such as Uniswap, and PancakeSwap, enjoy great popularity within the crypto community, registering billions of dollars in transaction volume every single day. This, alone, is a really crucial part, but DEX’s role doesn’t stop here: they are also the platforms where most of the newly launched crypto tokens are publicly available for the first time. Without their fairly simple listing process, starting projects would be hard, if not impossible, for the vast majority of enthusiasts. For example, most of the novel Ethereum-based tokens, such as the highly popular Shiba Inu (SHIB), and Decentraland (MANA), all began their regular trading on Uniswap.
On another note, DEXs are also important players in the Decentralised Finance (DeFi) space. PancakeSwap, being one of the most significant DeFi protocol providers, is the perfect representation. With its various liquidity provider options, holders of the supported crypto tokens have the chance to lock their funds for a certain period and get great annual percentage yields (APYs) in return.
Who controls a DEX?
Being decentralized, there is no single company or person behind DEXs (or DEX tools); rather, they are usually governed by holders of their native crypto tokens. In Uniswap’s case, holders of UNI, its native crypto token, have full control over the system—this type of governance is called a Decentralized Autonomous Organisation (DAO). Members of Uniswap’s DAO can decide on pretty much every aspect of the protocol by holding-based voting on community-submitted initiatives and proposals. So, if there is no single company behind DEXs, is there any way to create a DEX?
Decentralized Exchanges (DEXs) are basically like border control: everything has to go through them to enter the crypto world. With multiple billions in transactions every day, these systems are incredibly important, and while they have their limitations compared to traditional platforms, such as coinpass, there’s a lot to like in what they have to offer; at the end of the day, everyone has to decide for themselves which option they prefer.