Hey guys, in this article, we are going to discuss key things to know about DEX. So keep reading.
Popularly known as DEX, we can best describe decentralized exchanges as peer-to-peer market platforms for cryptocurrency traders. By using such platforms, a trader does not need intermediaries to carry out any trade. All of the transactions made through DEX are direct between the two parties. Cryptocurrency traders on these platforms rely on self-executing smart contracts.
Examples of DEX include on-chain order books, off-chain order books, and automated market makers. In this article, we will list the key things to know about DEX. Without further ado, let us get started.
DEX Lack Regulatory Oversights
With DEX, cryptocurrency traders do not have to deal with regulatory oversight. They mutually agree on the transactions to execute. This is generally beneficial for most traders because it provides a degree of freedom that they would not enjoy on centralized platforms. Conversely, working with third-party oversight can be limiting to some extent.
Denaturalized Exchanges Allow Transparency
DEX allows a great deal of transparency between traders. DEX users agree on the kind of information and data they will share through a mutual agreement. No third-party supervision is needed whatsoever. As such, traders vest their confidence and trust in each other.
Provide Democratic Participation
Decentralized exchanges allow democratic participation. Cryptocurrency traders on these platforms agree on terms that favor them all collectively. This means that no one can impose any terms of trading on each other. That said, they still are at liberty to look or ask for trading conditions that favor them.
Lower Management Fees
Regulators on centralized exchanges charge fees for their services. Even though it may not be obvious, a percentage of commission is deducted. This, in turn, increases the management fee. Luckily, DEX does not operate under similar principles. Therefore, traders enjoy lower management fees.
Pros Of DEX
DEXs are somewhat unsupervised. This means that traders are guaranteed privacy and freedom of trade, and their personal data is well protected. A trader need only share what they want to share with their counterparts and this is likely to happen when they want to transact.
Another highlight of a DEX is that all tokens are up for grabs. Traders aren’t limited to trading certain tokens. It doesn’t matter how unpopular a particular token might be. You can exchange any acceptable token without any problems.
Cons Of DEX
The risk of DEX is relatively high. For instance, if you lose your tokens unfairly, the chances of recovering them are slim. Why? This is because there are no regulators. Therefore, it is impossible to recover stolen or lost tokens. Moreover, traders cannot contact a support team for help because they are non-existent.
DEX platforms are a recent invention. What’s more, they are programmed to support simple sell and buy orders. Traders participating in these kinds of exchanges have little opportunity to stop or prevent losses. Also, DEX limits scalability. This happens with the likes of Ethereum blockchains.
As you can see, there are upsides and downsides to DEX. Nonetheless, it all depends on traders’ preferences. For instance, some traders thrive better on decentralized exchanges than centralized exchanges. If you have read this piece carefully, you are now better equipped to make a sound decision about DEX.