Decentralized Finance Protocols: Decentralized Exchanges

Despite the present economic downturn due to covid-19, DeFi remains a vibrant sector in the blockchain industry. In our last article on decentralized finance protocols, we took a look at Stablecoins. In this article our focus will be on decentralized exchanges also know as DEXs.

 What is a Decentralized Exchange?

A decentralized exchange (DEX) is a cryptocurrency exchange which operates in a decentralized way. That is without a central authority. Decentralized exchanges allows direct peer-to-peer trading of cryptocurrencies without a central wallet but trades are executed between each user’s wallets.

 How do DEX work?

Decentralized exchanges started off as on chain exchanges that means they were based on a particular cryptocurrency blockchain. But with further research and hardwork developers were able to develop cross-chain and multi-chain based DEXs. On these decentralized exchanges you can trade tokens that are based on different blockchains.

The most popular and widely used blockchain is the Ethereum blockchain. It is the second ever blockchain to be created after bitcoin. We should also note that majority of coins that have their own blockchain now started off as ethereum based tokens.

Decentralized Exchanges operates as a platform for trading and exchanging tokens created on a particular blockchain or tokens from different blockchains. Also note that trades on DEXs are directly wallet to wallet with no central authority acting as an intermediary or holding your funds.

One draw back on trading on decentralized exchanges is the difficulty in understanding how to operate a DEX. It is a bit technical trading on a decentralized exchange compared to a centralized one. You need to know how to connect your wallet, deposit to the DEX, trade on the DEX and be able to withdraw your assets successfully to your wallet after trading.

 What is Ethereum?

Ethereum is an open source programmable blockchain where developers can build decentralized applications and deploy smart contracts. Ether (ETH) is the native currency of the Ethereum blockchain. Ethereum is decentralized that means no government or central authority owns or controls it.


Developers all over the world are building decentralized applications and deploying smart contracts on Ethereum with which you can use to do the following:

  • Cryptocurrency wallets that let you make cheap, instant payments with ETH or other assets.
  • Decentralized Finance (DeFi) applications that let you borrow, lend, or invest your digital assets.
  • Decentralized markets/exchanges, that let you trade your digital assets.

Brief Introduction to Ethereum Blockchain

Ethereum was founded by Vitalik Buterin in 2015. Ethereum was created to serve as a platform where people can build and develop decentralized applications (dApps). The Ethereum blockchain is the most popular and widely used blockchain today.

Ethereum and its Decentralized Exchanges

Due to the need to securely trade ethereum based tokens wallet to wallet. Ethereum developers were able to develop decentralized exchanges. These decentralized exchanges include IDEX, DDEX, Ether Delta, Fork Delta, Token Store, Etherflyer, AfroDex, etc.

Other Blockchains and their Decentralized Exchanges

NEO Blockchain

NEO (formerly Antshares) is an open-source blockchain decentralized application platform founded in 2014 by Da HongFei and Erik Zhang. Since its rebranding to NEO from Antshares in 2017, the project’s vision is to realise a “smart economy” by utilizing blockchain technology and smart contracts to issue and manage digitized assets. Tokens created on the NEO blockchain are called NEP-5 Tokens.
Neo blockchain decentralized exchanges include Switcheo, NEX AdEx, etc. Switcheo is a cross-chain DEX. That means you can trade Ethereum and other blockchains based tokens there.

Waves Blockchain

Waves is an open blockchain platform and development toolset for Web 3.0 applications and decentralized solutions. Waves DEX or waves decentralized exchange is the one and only DEX for trading tokens created on the waves platform.

Tron Blockchain

TRON is a blockchain operating system/platform for decentralised apps and was founded in Singapore by Justin Sun. It originally sought to target the entertainment industry but has since evolved to cover the whole decentralized applications sector. The main idea is to enable content producers to sell direct to consumer rather than using third party app stores or other apps. The native currency of the Tron blockchain is known as TRX.
Tron blockchain decentralized exchanges include TRXMarket, Zethyr, Tron DDEX, etc.

 Conclusion

In this article our main focus has been on decentralized exchanges but we also talked about some major blockchains we have today. Decentralized Finance (DeFi) was one of the main ideas behind creating majority of these blockchains. It’s also important to note that despite Ethereum being the go-to blockchain for DeFi products and services other blockchains has recorded great progress too in the last 6 months.

Decentralized exchanges are a core part of the Decentralized Financial Ecosystem and compared to centralized exchanges they champion the course of decentralization removing the centrality in cryptocurrency trading.

In our next article on decentralized finance Protocols we will be talking about decentralized applications (dApps).