Cryptocurrency trading is becoming popular day by day as more and more people are looking at several ways to invest in cryptocurrency. Where the rush of investors is becoming part of various platforms for the sake of investment, here the hackers are also focused on performing malicious activities. To defend digital assets against hackers there should be mechanisms fully owned by assets' owners, here the Decentralized Exchanges (DEXs) came into the concept. DEXs are platforms that facilitate the users to perform trading without involving the centralized authority. This means that the users will have full ownership of their assets. In this article, we will discuss "Decentralized Exchange Platforms in Crypto Trading" as well as their risks and benefits. So without delay let's get started!
What Are Decentralized Exchanges (DEXs)
Decentralized exchange platforms (DEXs) are a type of cryptocurrency exchange that runs in a decentralized network. It allows users to trade cryptocurrencies in a peer-to-peer network without the involvement of a centralized authority or intermediaries to perform the transactions, unlike a centralized network where we can perform the tasks through the centralized authority. Here are some popular decentralized exchange platforms in crypto trading such as Uniswap, PancakeSwap, Sushiswap, 1inch, Curve, and many others. All these DEXs used to facilitate the traders to trade cryptocurrency in a peer-to-peer network. Furthermore, the DEXs application is gaining popularity day by day due to the ability to provide full ownership of digital assets to their owners. Whereas the centralized exchange will have control of our digital assets and cannot facilitate us to fully own our digital assets.
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Decentralized Exchange Platforms in Crypto Trading
Here are the most commonly used DEXs and gaining popularity day by day among traders or in the world of cryptocurrency:
- Uniswap: Uniswap is a type of DEXs and its smart contract is run on the Ethereum (ETH) blockchain. It is used to trade Ethereum-based tokens without involving the third party or centralized authority as well as it uses Automated Market Maker (AMM), which enables the users to perform trading using mathematical formulas so that way they can determine the price of each token.
- PancakeSwap: PancakeSwap utilizes the BNB smart chain and is a decentralized exchange tool. There are numerous traders and speculators there. Instead of utilizing the conventional model, it operates on the Automated Market Makers (AMM) model. It additionally offers a permissionless funding pool.
- SushiSwap: With SushiSwap's decentralized Exchanger DEX, you can trade coins without the involvement of third-party access. It runs on an Ethereum-based blockchain. as well as SushiSwap uses peer-to-peer trading in contrast to other platforms that require an intermediary for trading. It also makes use of the automated market maker decentralised trading method. (AMM).
- Curve: Curve is another type of decentralized exchange that is used for stablecoin trading with low slippage and low fees and it also uses Automated Market Maker (AMM) to optimize stablecoin trading.
Benefits of Decentralized Exchanges (DEXs)
The mentioned benefits make the DEXs more attractive for traders who give value to security, privacy, and ownership. Here, I mentioned ownerships:
- Increased security
- Decentralized and no single point of failure
- Great privacy
- Lower fees
- Fully ownership over digital assets
Risks Involved in Decentralized Exchanges DEXs
Where DEXs provide various benefits, here also comes various risks mentioned below:
- Low Liquidity
- User Error
- Smart Contract Risks
- Regulatory Risks
- Hacking Risks
Decentralized exchanges (DEXs) are platforms used to trade cryptocurrency in peer-to-peer networks and all the settlements will be done in a decentralized network. It ensures security, privacy as well as full ownership over the digital assets to their owners. DEX's technology also comes with various risks such as low liquidity, user error, smart contract risks, regulatory risks, and hacking risks. So it would be necessary that all the risks should also be in consideration while selecting DEXs.