What Is a DEX Platform?
A decentralized exchange, also known as DEX is as a platform which enables the peer-to-peer (P2P) trading of cryptocurrency from one wallet to another.
This type of exchange removes the need for a third-party by using pre-programmed software to match the seller with the buyer directly and let them establish the terms of their deal. Other advantages are avoiding the Know Your Customer (KYC) verification process, along with trading limits and high fees, and mitigating the risk of someone the funds being stolen or lost through an exchange vulnerability. You are also the only one that has control of your private keys and therefore your coins.
In today’s article, we shall cover five companies that are using the decentralized model on their platforms to enables P2P trading.
AirSwap is a decentralized, P2P trading platform startup based in Brooklyn, NY, in which the main trade is conducted privately between two parties off-chain. It runs on the Ethereum blockchain, enabling users from anywhere to transact on-chain.
Airswap doesn’t use an order book, applying instead a system called “intent to trade.” This removes the market manipulating practice of front-running, making trading fairer to market makers.
Because AirSwap runs on the Ethereum blockchain, ERC-20 tokens can be traded by a “maker” and a “taker”. The maker displays the tokens he or she wants to trade on the “indexer” and the taker fills the order. An “oracle” uses APIs to collect and display prices, from which the maker and taker can negotiate a fair price.
To be able to announce a trade on the indexer the maker must hold AirSwap tokens (AST), from which the value of the token is derived. There are no other fees aside from those necessary to purchase AST tokens for announcing trades and gas fees.
Kyber Network is another Ethereum-based trading platform which does not use order books. The exchange leverages multiple reserves, offering instant liquidity. Kyber Network users know the conversion rate before entering a trade and then decide if they want to continue with it or not.
Its payment APIs enables merchants to accept any ERC-20 token and have it automatically converted into whatever cryptocurrency they want.
As there are no fees on the exchange besides the gas fees, the Kyber Network and “reserve contributors” (mostly market makers) earn their profits from a spread. Third party reserves are handled by “reserve managers” that establish their own price for the token pairs they support.
To earn profits, reserve contributors are required to purchase the Kyber Network Crystal (KNC). A small amount of KNC is extracted from each transaction from the contributor’s funds and distributed to the Kyber Network platform.
0x matches trades off-chain and settles ERC-20 transaction on-chain. Unlike AirSwap, 0x uses an order book instead of an indexer. The protocol’s design caters more towards executing quicker orders/smaller transactions.
In addition, 0x enables anyone to be a relayer. A relayer matches makers and takers off-chain in public or private order books hosted by him, charging fees in 0x’s native currency ZRX for their services. ZRX holders are also able to vote on the governance of 0x, adding further value to the token.
Point-to-Point orders allow makers to generate and send orders to a specific taker through almost any communication medium, such as emails or messenger apps. The taker receives the order and then chooses whether he will fill it or not. Only the taker’s designated address is allowed to take the order.
Waves’ DEX allows the trading of cryptocurrencies, as well as the withdrawal and deposit of fiat currencies such as the US dollar and the Euro. For the latter feature, Waves charges a fixed fee of 0.003 WAVES for a transaction of any size.
Waves protects users from front-running by masking orders via using “matcher” nodes to pair orders off-chain in a centralized server and then execute them on the blockchain for an added layer of security and fairness.
Waves lets you also make a profit through mining. “Waves use a Proof-of-Stake algorithm in which the WAVES you own (or that have been leased to you) reflect your mining power. The more you own, the higher your chances of processing the next block and receiving the transaction fees as a reward.”
However, to enable this feature you need to have a minimum of 1,000 Waves. Their “Leased Proof-of-Stake (LPoS)” protocol also lets users make a passive income by leasing any amount of WAVES to a node.
Tron released its first decentralized exchange (DEX) in beta mode on October 27th, 2018. Named the “TronWatch Market”, the company’s official Medium page states that executives started drafting plans for the exchange last summer and have been working continuously with a team of 5 individual developers.
Users place orders as limit orders, making trading fast as well as simple. When an order is sent, TronLink – the platform’s browser extension – will determine the user to confirm it before it’s completed. All offers are kept off-chain to mitigate the risk of theft and malicious activity, while market taker orders are sent directly through the TRON network for processing.
The demo currently runs on Testnet and all trades are being executed by their smart contracts. Even though the platform does not use real currency yet, what you see will execute on Mainnet in the same manner. According to the project’s roadmap stipulated in their whitepaper, the Mainnet launch will take place 5 weeks after the beta launch.
DEXs do have their shortcomings when compared to their CEX counterparts, such as lower liquidity, no fiat currency support and lack of customer service. But they are still a work in progress, and a decentralized trading system does pose more attractive benefits.