Decentralized exchanges – the way to go »Brave New Coin


For the casual observer, the difference between a centralized and a decentralized exchange may not be immediately obvious. Simply put, Binance, Coinbase pro, Kraken and Okex are among the most popular crypt trading platforms – and all operate on a "centralized" style system, in which a single organization manages the flow of trading operations. This means that user data is stored on individual servers, rather than being distributed across multiple registers on a public blockchain.

In contrast, decentralized exchanges (DEX) such as Bancor IDEX [19659003] and Etherdelta offer peer-to-peer or order-type solutions based, non-custodial, trustless exchange. They conduct operations on the blockchain, therefore they participate directly in the commercial exchange activities, eliminating the need for a central party to hold clients' funds.

With user data spread across multiple data points, DEXs have clear security advantages over centralized exchanges and also offers a number of other potentially significant benefits

  • Users maintain their custody of their own funds and must not leave the crypto in the centralized exchanges portfolios

  • Users retain anonymity and do not have to complete the KYC steps required by most centralized exchanges.

  • Trading costs are generally dependent on gas tariffs and are not controlled by business models of a centralized exchange.

Despite these advantages, the analysis of BNC exchange data shows that DEXs conduct only a fraction of the transactions of their centralized counterparts. The trading data of six centralized centralized principals (Binance, Bitfinex, Bithumb HitBTC, Huobi and OKEX) were compared with those of nine major decentralized markets (Bancor Network, BitShares, DDEX, EtherDelta, ForkDelta, IDEX, OpenLedger, StellarTerm and the Waves Platform)

For a period between 1/06/2017 and 31/07/2018, the data of the volume of 24 hours for each of the exchanges show that, despite a certain steady growth shown by a number of DEX (Waves, for example, managed 16% more volume from the first day traced to the last), volumes managed by decentralized exchanges are diminished by those of centralized exchanges.

Binance, the largest stock exchange in the world by trade volume is centralized. It manages more volume in 24 hours, for example, of Bancor and Waves, manages in 30 days.

The 24-hour volume indicates the dollar value for the number of tokens exchanged on an exchange in a 24-hour period (UTC times used). The numbers are extremely large, so the notation & # 39; E + .. & # 39; it is used in most cases. That is 7.91 + E14 is equal to $ 791000000000000.

As this tweet illustrates, for some encrypted supporters there is clearly a hope that the decentralized exchanges will emerge from the shadow to save the scramblers from some of the chivalrous operations undertaken from centralized exchanges. As noted, DEXs offer many interesting advantages, so why do users not get on them?

The importance of the "user experience"

For the average investor / crypto-trader, the exchange hacks are quite rare not to to really be on anyone's radar. Moreover, since the violation of Mt Gox, every exchange that has been hacked has generally replaced the funds lost by users, thus denying much of the fear factor that could have pushed someone to a DEX.

In addition, centralized exchanges such as Binance and Coinbase continue to move forward in the user interface, in customer service and in liquidity solutions.

For example, Coinbase offers access ramps in encryption with fiat couplings, has integrated digital portfolios, offers brokerage, banking and retail services, and in practice has become a reference point for anyone who wants to interact with crypto. .

Perhaps the biggest problem for DEX could be price slippage and liquidity. Slippage occurs when delays in order settlement can affect the price that users pay for their negotiations (up or down). Coping with this is a challenge for DEXs for a number of reasons, but it is primarily a numbers game – there are simply not enough traders who use them.

Centralized exchanges also frequently trade large volume discounts, as well as institutional information tools such as charting and trading margin (trading by credit). The big bags are able to do it because they have the money to spend to improve their user experience. Binance, for example, plans to turn a profit of billions of dollars into this financial year, giving them an advantage on the market that, from the point of view of a decentralized cheap exchange, appears almost unassailable.

The Future of DEX Solutions

There are reasons to be optimistic about the future of decentralized trade, however, as advances such as the 0x protocol could allow DEXs to offer comparable solutions to centralized exchanges.

With 0x, the interaction with the market and the interactions between buyer and seller take place outside the chain, before the settlement of transactions takes place on the chain. Exchanges using 0x (called "relayers") can therefore offer more complex revenue models through schemes such as the distribution of fees with other exchanges using 0x, sub-fund models in which exchanges contribute to mutual liquidity (gaining a share of trading commissions as affiliates), and similar solutions that improve the out-of-chain user experience while maintaining the integrity of a blockchain settlement layer. In this way, exchanges operating under protocol 0x should be able to address problems such as poor liquidity and slippage.

An example of a new solution to the challenges of user experience faced by decentralized exchanges, facilitated by the use of 0x, is Acqueduct Instrument of ERC dEX . The main objective of Aqueduct is to create a usable open order portfolio solution in which ERC relay relay users have access to buyers and sellers through other operators 0x. This means a wider pool of options to match orders. This system creates both a larger circle and creates incentives for users to add to this circle.

Another important aspect of the Aqueduct solution will be the addition of API levels that will help users access detailed and granular information on the chronology of exchanges, order data and other potentially useful information.


Decentralized exchanges can conquer their centralized counterparts when it comes to security ( arguably some may dispute), and alignment with the fundamental cryptic philosophy of "decentralization". However, when it comes to other relevant metrics like liquidity, user experience, trading pair options and accessibility, centralized exchanges currently offer far better options than DEX.

It is not surprising, therefore, to see such a continuous divergence in the volumes of exchange between the two options of the trading platform. However, DEXs are an encrypted infrastructure solution with considerable potential and their use could accelerate under the right market circumstances. Of course, smart money sees the potential of technology – as evidenced by events such as Coinbase purchase of Paradex.

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