What is DEX

A decentralized exchange (DEX) is a means of exchanging cryptocurrencies or other blockchain-based assets without a centralized agency or intermediary. These new exchanges for decentralized finance (DeFi) have inherited the benefits of blockchain: decentralization, censorship resistance (for instance, no KYC), extremely substantial safety, and unalterable data.

Anyone who has Etherium or Tron may join. This means that DeFI can facilitate access to banking and financial services for anyone with an internet connection and might boost financial inclusion for billions of unbanked people and distant communities.

DEX that provides liquidity is called’liquidity supplier ‘ or ‘yield farmer’ (the practice of supplying crypto liquidity and make crypto is called yield farming).

Liquidity provider or yield farming farmer are DEXs who earn cryptocurrencies by offering cryptocurrencies ownership at a certain period. The concept of a liquidity provider is nothing new and is used in Forex (FX) trading that’s an intermediary can buy and sell cash, thus to earn money by money. Bancor was the first job that implemented an AMM.

ShushiSwap

SUSHI tokens are given as rewards for liquidity mining. The token allows its holders to take part in the governance of this platform and entitles them to a portion of the fees paid to the protocol by traders. For the governance of the platform, SUSHI holders may submit a SushiSwap Improvement Proposal (SIP) which token holders may vote on with their tokens.

UniSwap

Uniswap is a protocol on Ethereum for swapping ERC20 tokens. Unlike most exchanges, which are designed to take fees, Uniswap is designed to be a public good — a tool for the community trade tokens without platform charges or middlemen. Also unlike most exchanges, which match buyers and sellers to determine prices and execute trades, Uniswap uses a simple math equation and pools of tokens and ETH to do the same job.

Uniswap Workings

A side note Uniswap was in the news as it gave away $1200 in UNI tokens to the community and plans to keep doing so in the future.

Benefits of DEXs

You are not required to trust the honesty or security of the exchange because the funds are held by you on your personal wallet rather than by a third party.

Another advantage to the decentralized model is the privacy it offers. Users are not required to disclose their personal details to anybody, except if the exchange process involves bank transfers, in which case your identity is disclosed only to the person that is buying or selling from you.

Moreover, the hosting of decentralized exchanges is dispersed throughout the nodes involved — meaning that there is no probability of server downtime.

Downsides

Of course, there’s always a downside and this case is no exception. Centralized exchanges are extremely popular for many reasons.

Some decentralized exchanges such as Bisq, require users to be online in order for an arrangement to be listed and for the trade to take place, requiring users to perform certain actions like signaling that a payment was received.

Trading features like margin trading, lending and stop loss are currently unavailable on a lot of DEXs as they only enable the fundamental exchange of currency for a predetermined value.