Decentralized exchange. Features and pitfalls
The vast majority of trading platforms are centralized. About 200 sites are free from centralization.
(DEX, decentralized exchange) – a platform that does not store user data and works on the basis of a distributed registry. It is an aggregator for matches searching on buy or sell orders. DEX helps users to conduct transactions directly.
Advantages of decentralized exchange
- The anonymity of the trader.
- No single entry point / inability to attack.
- Lack of personal accounts, verification and KYC procedures
- There is no access to the assets of users
- No management, no one to manipulate prices
- Distributed architecture makes the site unbound to cities and countries. It cannot be closed.
Cons, which a decentralized exchange provides
- The lack of support
- Only smart contracts cryptocurrency are involved in the auction
- Lower liquidity when compared to centralized
- Many options unavailable: stop loss, margin trading, landing.
What follows from this? Centralized exchanges are managed by a company or person who needs a profit. Such sites also receive confidential user information. If the company is created to deceive users, there is a possibility of client money stealing and personal data trading.
Decentralized exchanges are in automatic mode. All actions on it are performed under the responsibility of its participants. All clients are equally involved in making important decisions. All data is stored on the blockchain.
Such exchanges, as noted above, are at least 100 times less centralized. This is due, among other things, to the not quite clear business model of the sites. By creating such a product, you risk to spend time and money without getting anything in return.
It is possible to perform, for example, the business model of Waves Dex. It becomes obvious that even if the site itself does not bring tangible benefits, profit is observed in other projects. For example, Waves cryptocurrency trading (the platform stimulates trading with this coin).
Singapore is in the process of establishing a regulatory framework for the operation of DEX. American law is trying to regulate the work by existing laws. Throughout the rest of the world, DEX is not regulated.
Future of DEX
Of course, this is a niche product, and its future is ambiguous. Those who come from traditional sites may be pushed away by the user interface. Therefore, DEX should become more user friendly.
In turn, traditional trading platforms can take the best from DEX and become something in between centralized and decentralized platforms.