What Is A DEX?
For those who are unfamiliar with DeFi, you may not know exactly what people mean when they discuss DEX's.
A DEX is a Decentralized Exchange, and serves as an alternative to centralized exchanges like Coinbase or Binance. It is a way of trading without the middleman as the market is solely peer to peer.
Here is an actual dictionary definition:
Decentralized exchanges are a type of cryptocurrency exchange which allows for direct peer-to-peer cryptocurrency transactions to take place online securely and without the need for an intermediary.
Some examples of DEX's include Uniswap, 1Inch, Pancakeswap and domestically we have the LeoDex.
Why Use DEX's?:
It is a reasonable question to ask. If we have the ability to go to our Binance or Coinbase app and have our transaction credited in a matter of seconds, what is the added benefit of using a decentralized exchange instead?
Though I personally still use centralized exchanges as well as decentralized ones, here are a few reasons to make the switch over to a DEX.
Privacy
There is no KYC verification needed to trade on a DEX. Whereas Binance or Coinbase needs to verify who you are, how much money you have and why you want to trade, a DEX is simply a set of inputs and outputs that does not require you to share your reasons for trading. The enhanced privacy and anonymity may be something that is attractive for investors who don't necessarily want their governments snooping on their transactions.
Fees
Ethereum sucks, so Uniswap is super expensive. BUT the greatest aspect of the Binance Smart Chain is that fees range from like $0.05-$0.20. This is an incredible gift as users can very affordably get the crypto that they would like. This also allows for different yield farming protocols like our Cub Finance to be incredibly affordable to interact with. Low fees will be our societies next race to the bottom that we saw with clothing production in recent years.
Asset Diversity
There are simply more options on DEX's. Between the Binance Smart Chain and Uniswap, investors have access to thousands of different cryptocurrencies. You can also generate the code for any cryptocurrency (ERC-20 or BEP-20) and plug that into the decentralized protocol to exchange for that coin. The possibilities are honestly endless whereas centralized exchanges are limited to approved tokens that they are holding on their balance sheets.
Trustless Transactions
Though I am not really of the mindset that large businesses like Coinbase or Binance will steal our crypto, there is always some risk involved in having someone else manage your money. There is also the slight slight chance that one of these exchanges gets hacked (we saw this with Kucoin) and your assets stored on there could be at risk. With a DEX, you are in charge of protecting your own wallet, so you don't have to trust in any team's security protocols, you create your own.
Your Keys Your Crypto!
When using a DEX, you have total control over your assets. They are not located on an exchange database with your username as an identifier, but rather are located in your wallet that is protected by your private keys. There is a lot of agency in ownership when using a decentralized exchange. You are in charge of your finances and there is total transparency as you trigger and sign off on every single transaction.
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