Why Use a DEX?
DEXes allow traders from anywhere in the world to participate without any restrictions. Anyone with an internet connection and a DeFi wallet can trade on these decentralized markets.
There’s no need to rely on a company or any individuals to hold your funds – smart contracts manage everything. These smart contracts are designed to avoid bankruptcy, human error, or theft, as long as they are properly coded and work as intended.
Most Popular DEXes
Uniswap (AMM on Ethereum)
Uniswap introduced the AMM model in 2018 and remains today’s largest decentralized exchange. It’s based on Ethereum and has been deployed on over 20 different EVM networks.
The latest version of its protocol uses concentrated liquidity pools, which let liquidity providers choose specific price ranges for their contributions. This system increases liquidity, reduces slippage, and enhances the trading experience for everyone involved.
Uniswap’s native governance token, UNI, allows users to vote on proposals and influence the future direction of the exchange.
| Launch date | November 2018 |
| Founded by | Hayden Adams |
| Supported chains | 20+ EVM chains including Ethereum, Arbitrum, Base, Polygon, and others |
| Flagship feature(s) | Largest DEX, concentrated liquidity pools |
| Governance Token | UNI |
Curve (Stablecoin-Focused AMM)
Curve is an AMM on Ethereum and several other EVM chains, specializing in efficient stablecoin trading.
It offers traders extremely low-slippage trades between stablecoins, while liquidity providers benefit from relatively low risk. Additional income is generated by supplying the liquidity pool to protocols like Compound and yearn.finance.
Curve pioneered the vote-locking model, allowing users to lock up its native CRV governance token for voting rights in the form of veCRV. The longer the CRV is locked, the more voting power users gain.
veCRV holders influence how much CRV each liquidity pool receives, affecting the distribution of liquidity rewards. They also earn a portion of platform fees and receive up to 2.5x boosted rewards compared to non-veCRV holders.
| Launch date | January 2020 |
| Founded by | Michael Egorov |
| Supported chains | 15+ EVM chains including Ethereum, Arbitrum, Polygon, & others. |
| Flagship feature(s) | Efficient stablecoin swaps, vote-locking system |
| Governance token | CRV |
Aerodrome (AMM on Base)
Aerodrome is an AMM on Layer 2 scaling network, Base. It is a fork of Velodrome, a closely related exchange on Optimism.
The exchange takes inspiration from Uniswap, Curve and Convex, combining core principles of each into a single protocol. This includes Uniswap’s concentrated liquidity pools, Curve’s stablecoin AMM, and Curve’s famous vote-locking mechanisms.
Holders of Aerodrome’s native AERO token can lock up their tokens to vote on reward distributions and to earn a share of platform fees. Rewards are auto-compounded and automatically optimized for liquidity providers.
| Launch date | June 2023 |
| Founded by | Alexander Cutler (core Velodrome team member) |
| Supported chains | Base L2, Velodrome on Optimism |
| Flagship feature(s) | Concentrated liquidity, stablecoin swaps, vote-locking |
| Governance token | AERO |
dYdX (Derivatives)
dYdX is the leading decentralized derivatives exchange. Launched on Ethereum in 2019, it has since moved to the Cosmos ecosystem as a highly customized app chain.
The exchange allows users to trade perpetual futures contracts for major cryptocurrencies, from Bitcoin to DeFi governance tokens, and even meme coins.
dYdX is known for offering a user experience comparable to centralized exchanges in terms of speed and latency, a notable achievement for a decentralized platform.
The platform provides a mobile app for iOS and Android, enhancing accessibility for its users.
| Launch date | April 2019 |
| Founded by | Antonio Juliano |
| Supported chains | Ethereum, Cosmos |
| Flagship feature(s) | Perpetual futures trading |
| Governance token | DYDX |
1inch (Aggregator)
1inch was created during the ETHGlobal hackathon in New York in 2019, and is now the most popular DEX aggregator on Ethereum and EVM networks.
By aggregating liquidity from various DEXes, 1inch minimizes slippage and ensures users get the best rates on their trades. It also supports limit orders, which aren’t typically available on the individual DEXes it connects.
1inch has a native token, 1INCH, used for governance and staking rewards.
| Launch date | May 2019 |
| Founded by | Sergej Kunz and Anton Bukov |
| Supported chains | 10+ EVM chains including Ethereum, Arbitrum, BNB Chain, Polygon, & others |
| Flagship feature(s) | Aggregator, wallet. |
| Governance token | 1INCH |
Raydium (Solana AMM)
Raydium is the most popular DEX on Solana, combining AMM features with order books from Serum – a high-speed liquidity protocol. It provides efficient and low-fee trading, performing similarly to Ethereum Layer 2s.
Raydium liquidity providers can earn rewards in RAY tokens, which can be used to stake for further rewards. RAY tokens are also used to govern decisions for the exchange.
Charts are readily available for each market within the user interface, making trading decisions easier for users.
| Launch date | February 2021 |
| Founded by | Pseudonymous team: Alpha Ray, XRay, and GammaRay |
| Supported chains | Solana |
| Flagship feature(s) | Largest AMM on Solana |
| Governance token | RAY |
Jupiter (Aggregator on Solana)
Jupiter is a DEX aggregator on Solana that helps users find the best prices for their trades, by connecting to multiple DEXes.
It offers advanced features like limit orders and dollar-cost averaging (DCA), allowing users to make periodic purchases. Jupiter also supports perpetual futures trading with high leverage, bridging between blockchains, and even has a launchpad for new Solana projects.
Jupiter’s native token is JUP, which is used for governance, to incentivize user engagement, and to provide rewards within its ecosystem.
| Launch date | October 2021 |
| Founded by | Pseudonymous developer “Meow” |
| Supported chains | Solana |
| Flagship feature(s) | Aggregator, perpetual futures, token launchpad |
| Governance token | JUP |
ThorSwap (Cross-chain)
Unlike traditional DEXes that only support trading within the same blockchain, THORSwap enables users to trade crypto across different chains.
It uses the THORChain network to connect several blockchains, letting users swap those chains’ native assets like BTC, ETH, and others directly with each other.
The platform leverages THORChain’s RUNE token to secure the network, provide liquidity, and facilitate transactions. Users can hold and stake RUNE to participate in the network’s governance and earn rewards.
| Launch date | July 2021 |
| Founded by | THORChain community |
| Supported chains | 11+ chains including Bitcoin, Ethereum, Doge, BSC, Cosmos, and others |
| Flagship feature(s) | Cross-chain native asset swaps |
| Governance token | RUNE |
PancakeSwap (AMM on Binance Smart Chain)
PancakeSwap is the leading DEX on Binance Smart Chain (BSC), also deployed on 8+ other EVM blockchains.
The exchange was highly popular during the 2020-2021 bull run, serving as a user-friendly DEX for mainstream onboarding efforts thanks to its low fees and user-friendly interface.
PancakeSwap”s native token is CAKE, which is used for staking, yield farming, and participating in new token offerings. It also allows holders to vote on governance proposals and pay transaction fees on PancakeSwap.
| Launch date | September 2020 |
| Founded by | Anonymous developers |
| Supported chains | 9+ chains including Binance Smart Chain, Ethereum, Aptos, and others |
| Flagship feature(s) | Largest DEX on BSC |
| Governance token | CAKE |
Lyra (Options)
Lyra is a DEX best known for options trading. It lets users trade European calls and puts for Ethereum and Bitcoin.
Originally launched on Layer 2 scaling platform, Optimism, the platform has now launched its own network, Lyra Chain – a customized version of Optimism for fast, low-cost transactions.
Governance and fees are managed by the Lyra DAO and its LDX token, with fees contributing to an insurance fund for the exchange.
Version 2 of the protocol also offers perpetual futures trading and yield opportunities on derivatives and ETH restaking tokens.
| Launch date | June 2021 |
| Founded by | Michael Spain, Nick Foster |
| Supported chains | Lyra Chain and deposits from Ethereum, Arbitrum, Base, and Optimism. |
| Flagship feature(s) | Options trading |
| Governance Token | LDX |
Different Kinds of DEXes:
Automated Market Makers (AMMs)
Automated Market Makers (AMMs) allow you to trade cryptocurrencies directly from a pool of tokens provided by users who earn fees for their contributions. Instead of matching buy and sell orders, AMMs use algorithms to set token prices based on the pool’s supply. This system ensures continuous trading and easy access to liquidity for everyone.
Examples: Uniswap, Curve, SushiSwap, Raydium.
DEX Aggregators
DEX aggregators are platforms that automatically find the best prices for trading crypto, by searching multiple decentralized exchanges at once. They combine the liquidity from various exchanges to ensure you get the most favorable rates and lower trading costs. This makes trading more efficient, saving you time and money.
Examples: 1inch, Jupiter, Matcha, Paraswap.
Cross-Chain DEXes
Most DEXes are traditionally single-chain, meaning you can only swap assets within the same blockchain network. Cross-chain DEXes are designed to enable users to swap between assets between different blockchains. When you swap tokens, the platform locks your tokens in one blockchain and releases the equivalent value of tokens on the other blockchain.
Examples: THORSwap, Synapse.
Derivatives DEXes
Derivatives DEXes are decentralized exchanges where you can trade financial products like futures and options that derive value from underlying assets. They allow you to bet on the future price movements of cryptocurrencies, often using leverage to increase potential profits. This provides a way to hedge investments or speculate on price changes without owning the actual asset.
Examples: dYdX, Lyra, GMX.
| AMMs | Aggregators | Cross-Chain | Derivatives | |
| Type of Trading | Same-chain token swaps | Same-chain token swaps | Token swaps across different chains | Contracts speculating on asset prices |
| Source of Liquidity | User-deposited pools earning fees | Pools from other exchanges, often AMMs | Locked tokens across different chains | Order book from users trading products |
| Benefit | Easy, permissionless trading | Finds best prices efficiently | Swap native assets between chains | Trade without owning the asset |
| Example Platforms | Uniswap, Curve, SushiSwap, Raydium | 1inch, Jupiter, Matcha, Paraswap | THORSwap, Jumper, Synapse | dYdX, Lyra, GMX |
Decentralized Exchange Risks
Decentralized exchanges are still new and improving platforms, which aren’t yet perfect. Even though they eliminate a lot of human error, it’s important that you understand the risks involved in using these evolving protocols.
KyberSwap was a DEX hacked for $48 million in 2023. | Source: CoinDesk.com
Here are some DEX-specific risks that you should look out for:
- Smart Contract Bugs: DEXes rely on smart contracts. Any bugs or vulnerabilities found in the code could be exploited by hackers, leading to a loss of funds.
- Impermanent Loss: Providing liquidity to DEX pools can result in impermanent loss, where the value of your assets is lower than if you had just held them, due to market volatility.
- Scam Tokens: Many DEXes are permissionless, allowing anyone to add a token for trading without a vetting process. Some tokens may impersonate legitimate projects or have hidden features like taxes or whitelists to scam buyers.
- Rug Pulls: Some projects traded on DEXes can have dishonest leadership, who could withdraw all their liquidity from the exchange. This is commonly known as a “rug pull.”
- Complexity and User Errors: Some DEXes can be complicated to use. Mistakes in transactions or interacting with smart contracts can lead to the loss of funds.
- Lack of Support: DEXes require users to be more independent, and limited customer support for issues can result in unresolved problems.
To minimize these risks, stick to trusted and well-audited DEXes, do thorough research, and manage your assets carefully. Always double-check the contract address of the tokens you are trading or choose assets from a DEX-approved list.
Conclusion
Decentralized exchanges come in various forms, creating more open and secure versions of traditional financial platforms – from spot trading to derivatives markets.
By eliminating intermediaries and human error, DEXes allow users to take advantage of new and exciting financial products while maintaining full control over their funds.
As the technology continues to evolve, DEXes are set to play a key part in the wider financial world, making markets more accessible and inclusive for everyone.
FAQ
With most DEXes, you always retain complete custody of your funds. When you sell tokens from your wallet, they are sent within the same transaction that you receive the tokens you are purchasing.
The few exceptions to this are derivatives DEXes and liquidity provision, which require you to deposit funds into a smart contract.
In either case, no company or human ever has custody of your funds. Smart contracts entirely manage the process.
Using a DEX is easier than ever. All you need to do is:
- Load a DeFi wallet with cryptocurrency
- Connect it to the DEX app in your browser
- Select the asset and quantity you wish to buy, and the asset you wish to sell
- Approve the transaction(s) to execute the swap.
The purchased tokens will be sent directly to your wallet, with no other steps required.
According to DeFiLlama, Uniswap is the most popular DEX at the time of writing, with $5.59 billion in total value locked (TVL) across all chains.
Curve comes in second, with a TVL of $2.17 billion.
DEXes are generally safe to use, as they allow you to retain control of your funds and reduce the risk of human error. However, they rely on smart contracts, which can have bugs or vulnerabilities that hackers might exploit.
Using well-audited and reputable DEXes is important, and sticking to trading trusted assets.
Yes, you will likely owe taxes on DEX trades. Buying and selling crypto, including on DEXes, is typically subject to capital gains tax.
It’s important to keep records of your trades and consult with a tax professional to ensure you comply with tax regulations.
