The blockchain field and the crypto-verse are witnessing a revolution. This time, it’s the rise of decentralized finance (DeFi) facilitated by the decentralized exchanges (DEXs). Lately, the DEXs have been stealing significant user base from their centralized counterparts, generating traffic and fees for their liquidity providers.
The main advantage of DEXs is being non-custodial, which nullifies the risk associated with handing over your assets to a central authority. DEXs feature permission-less asset listing, offer superior privacy, equal and fair rules for all assets, near-zero wash trading or parameter manipulation, better slippage for stablecoins/wrapped assets and vastly improved UI/UX than before.
However, decentralized exchanges (DEXs) still need to improve slippage rates for regular assets, liquidity depth, accelerate order execution speed and reduce fees in order to become the epitome of price discovery. When it comes to competing with centralized exchanges (CEXs), they still have a long way to go. However, the DEXs are on the right track and here are the top 5.
Known as the Automated Market Maker (AMM) pioneer and launched in 2017, Bancor is one of the oldest DeFi projects. It introduced the concept of order-book less trading, without the need of a direct counter party, but rather liquidity pools. Bancor is a well-known and important liquidity provider, which is used by many DeFi aggregators.
Bancor v2, the next major upgrade for the project, was launched in Aug 2020. It features advancements such as single token liquidity provision, sourcing data oracles from Chainlink to eliminate impermanent loss, reduced slippage design, liquidity amplification (for both stable and non-stable coins) and support for lending pools.
Exclusively designed for stablecoins, Curve Protocol is one of the most used Automated Market Maker (AMM) type decentralized exchanges (DEXs) and liquidity aggregators. Featuring mass integrations with DeFi protocols, it allows for the lowest slippage rates and trading fees for stablecoins/wrapped tokens.
The Curve Protocol algorithmic liquidity pool regulator allows for faster and efficient matching of trade orders. It has the liquidity amplification function, allowing a small pool to punch above its weight by offering 100-1000 times more liquidity depth than competitors. Curve also supplies the pool tokens to Compound protocol or iearn.finance to earn interest. The seven main Curve pools are Compound, PAX, Y, BUSD, sUSD, ren and sBTC.
3. Binance DEX
The order-book style decentralized exchange (DEX) has a minimalist and clean interface with TradingView charting, offering a large selection of tradable crypto-assets and vastly improved volume. It is based on the proprietary Binance Chain blockchain, offering relatively fast resolution times and low trading fees.
1inch.exchange is a DEX aggregator, which means that it sources liquidity from other liquidity providers or decentralized exchanges (DEXs). Its salient feature is that it splits the user placed order to multiple pools and chooses the best optimized route for low slippage. The service is non-custodial, can process large transactions and saves the trouble of manually finding the best conversion rate.
The DEX aggregator sources liquidity from 0x Protocol, Uniswap, Bancor, Balancer, Kyber, Airswap, etc… It offers a wide variety of ERC-20 tokens and shows rates/slippage comparison across DEXs in real-time. 1inch.exchange has also designed a CHI gas token to save on Ethereum processing fees in gas, based on its storage refund mechanism.
Uniswap is THE decentralized exchange (DEX), with a trading volume and fees leaving all other DEXs behind in the dust, and even competing with the top CEXs! Its greatest strengths are permissionless listing, solid analytics, excellent UI/UX, low slippage and fees. Virtually, every trade-worthy ERC-20 token is listed on this great platform, which for the last seven days (Sep 18 – Sep 25) has been generating more fees than the entire Bitcoin blockchain!
Simply put, it enables non-custodial exchange of ERC-20 coins against ETH or other ERC-20 coins. It also allows users to provide liquidity to pools, in an easy and interactive manner to earn a percentage of the trading fees. Uniswap recently introduced the governance token UNI and airdropped 400 UNI token to everyone who provided liquidity or used the platform before Sep 1.
Launched on May 18, the Uniswap v2 is the second iteration of the popular Decentralized Finance (DeFi) protocol for trading and automated liquidity provision. It introduces direct ERC20/ERC20 pairs (previously limited to ERC20/ETH pairs), hardened price oracles, flash swaps/instant loans, new improved minimalist and modular smart contract, inactivated provision for protocol charge mechanism and introduction of a decentralized governance process.
Honorable mention: Keep an eye on Burgerswap/Bakeryswap
Binance recently launched their own Smart Chain, known as the Binance Smart Chain. The chain offers faster execution and lower fees compared to Ethereum. Quickly after, Burgerswap and Bakeryswap, two Uniswap-like projects using the Binance Smart Chain, were announced.
Binance listed BURGER/BNB and BAKE/BNB on its centralized exchange on the 24th of Sep. Whether one of them will be as successful as their predecessor, Uniswap, remains to be seen. We’re definitely keeping an eye on it.