2020 was the year for decentralized exchanges (herein referred to as DEXs) to take the mainstage and 2021 will be when they mature and possibly become mainstream. With optimized usability, deeper liquidity, and emerging composability, the DEX ecosystem is as strong as ever.
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Decentralized Exchanges News 2021
August is shaping up to the biggest month for DEXs to date. Most notably highlighted by the rise of Uniswap, dYdX, Balancer and Curve, DEXs have quickly taken center stage as the primary market for new DeFi tokens.
Now, DEXs are competing to capture market share in the rapidly growing sector. Balancer has made a suite of adjustments to its Liquidity Mining program in which users can earn BAL governance tokens for providing liquidity by focusing on useful liquidity and penalizing those looking to game the distribution.
Bancor V2 is quietly rolling out its new pools with LINK, LEND, REN, renBTC, SNX and more in the coming weeks. Curve is debuting it’s new CRV governance token and rewarding LPs handsomely for doing so.
Long story short, there’s never been stronger incentives to provide liquidity to the DEX ecosystem. With that, be sure to keep a close eye on impermanent loss as it’s sure to come and bite you in the midst of a full blown bull market!
An Overview on DEXs
When it comes to exchanging crypto, many have long been focused on centralized players like Binance or Coinbase largely due to their fiat onramps and ease of use. Despite these notions, many have been quick to point out that centralized exchanges come with their own inherent risks – namely those of custody.
Famously highlighted by hacks on once-prominent exchanges like Mt. Gox in 2014 and Quadriga in 2018, many traders have come to recognize the value of non-custodial solutions offered by decentralized exchanges.
In the past year alone, DEXs have made serious improvements in both usability and liquidity – signaling that they are ready to compete with their goliath counterparts.
Decentralized Exchange Characteristics
Some of the most notable aspects of DEXs include:
- Non-custodial – Ownership of the underlying assets is never revoked.
- Automated – With no intermediaries, DEX trading is instantaneous so long as there is sufficient liquidity.
- Cost-Efficient – Many DEXs have minimal trading fees, allowing users to swap assets at little to no cost
- Globally Accessible – Most DEXs do note require any sign-ups, and largely come with no counterparty risk.
- Intuitive – Newer trends have evolved DEX trading from order books to simple point and click swaps.
- Pseudo-anonymous – Users simply connect a wallet of their choice to start trading. No profile or background information is required.
Top Decentralized Exchange Picks
In a rapidly developing market, it’s important to ensure users are trading on a trusted exchange. Dune Analytics offers an awesome interface for quickly seeing which DEXs have had the most volume in the past 24 hours.
For your convenience, we’ve aggregated a list of our top picks on the DEX market today:
Uniswap offers a simple one-click interface to swap any two Ethereum assets against an underlying liquidity pool.
Trading with Uniswap is trustless and permissionless thanks to liquidity pools which allow anyone to create or seed a market by supplying it an equal value of the two ERC20 tokens being paired. Liquidity providers earn a pro-rata portion of the 0.3% trading fees each time the trading pair is used.
Uniswap currently does not have a native token, meaning liquidity providers earn the fees dominated in the assets within their respective market.
- Aave recently introduced a Uniswap Money Market – allowing users to post UNI LP tokens as collateral for a loan.
- Applications can seamlessly integrate a Uniswap front-end into their product
- Certain projects – like Synthetix – offer incentives for seeding liquidity on Uniswap
- Uniswap V2 allows for flash swaps
dYdX is unique as it allows users to go long or short on Ether with up to 5x leverage in a permissionless fashion. Better yet, dYdX provides cross-margin lending and borrowing, meaning users earn passive income while supported assets sit on the exchange.
- Capital supplied on dYdX collects interest even while it is being used on an active trading position.
- Users can purchase smart contract covers on dYdX using Nexus Mutual.
- dYdX offers spot markets for seamless conversion between supported assets like Dai, USDC, and ETH.
Kyber Network is a leading liquidity protocol that incentivizes Reserve Managers to contribute to an aggregated pool of liquidity for a pro-rata share of 0.3% trading fees.
Kyber’s DEX – Kyber Swap – has seen significant growth in recent months and is expected to lead as one of the top DEXs throughout 2020.
Kyber uses a native token – Kyber Network Crystals ($KNC) – for governance and a claim on trading fees.
Kyber will soon launch Katalyst – a tokenomic upgrade that introduces the KyberDAO – a means for users to govern protocol fees and earn ETH for participation.
- Kyber has an extensive ecosystem and some of the deepest liquidity pools in the DEX space
- Many notable DeFi applications user Kyber under the hood
- Kyber Reserves offer liquidity on niche assets unavailable or untradable on other DEXs
As a DEX aggregator, 1inch pulls liquidity from a number of different DEXs to offer limited slippage on large orders. This allows capital to be pulled in an advantageous fashion for the trader, ultimately giving them the best price for their order.
- Great for high volume trades thanks to aggregation
- 1inch offers swaps, limit orders and lending rates.
- Users can purchase covers on 1inch contracts using Nexus Mutual.
When it comes to trading NFTs, OpenSea has set a high standard for an intuitive user-interface while handling assets in a noncustodial manner.
Founded in November of 2017, OpenSea is the leading exchange for crypto collectables – a market which is likely to drastically expand in the coming years.
- OpenSea’s wallet makes it easy to view and value the NFTs in your wallet
- The exchange offers a number of different auction types, providing flexibility for owners in how they sell their assets
Key Points to Consider
With so many DEXs to choose from, here are a few of the boxes you should be sure to check before getting started:
- Slippage – The biggest thing to note when using a DEX is the slippage associated with the trading pair. As a general rule of thumb, the more obscure the pair (i.e. exchanging tokens with small respective market caps) the more slippage there will be. Almost every DEX will display the expected slippage under their “Advanced” options.
- 30D Volume – The best way to ensure a DEX is worthwhile is to check its relative volume. Generally speaking, those with the most volume over a 30 day period tend to be the most reputable.
- Custody – Be sure to note the degree of custody a DEX requires. The spectrum varies greatly and we largely recommend using DEXs which do not require assets to be deposited to other smart contracts for trading to happen.
- Audit History – Virtually all DEXs will undergo a rigorous amount of audits before their “full launch”. It’s always great to make sure a platform has been audited before using it to trade.
- Beta Mode – Many DEXs are still in their nascency and will signal this with a “beta mode” indicator somewhere on the site. For new users, we recommend staying away from projects which are still in beta mode.
- Social Presence – Projects which have community-backing are often most active on social media. If you’re on the fence about using a DEX, check out their Twitter to see if the community is engaging with their posts as a signal of trust.
DeFi Decentralized Exchange List 
DEXs are one of the most vibrant sectors in the DeFi ecosystem. Here’s a look at all the DEXs currently on our radar:
DEX aggregators include:
Centralized Exchange List 
On the other end of the spectrum, we have centralized exchanges. In order to get started with a DEX, we recommend trusting the following exchanges with fiat onramps.
As we continue to watch DEXs grow in popularity and ease of use, there’s a strong signal that they will continue to capture more of the wider exchange landscape in 2020. With passive income streams to be earned from supplying capital to these exchanges, it’s likely that more and more users will realize the benefits of interacting with the wider DEX landscape.
As more DEXs continue to be tied together using smart order routing and aggregators, it’s highly likely that slippage on DEXs will become a thing of the past.
If you’re working on a DEX project and would like to be listed on this page, please contact us to set up a discussion with someone on our team.
How do DEXs work?
While the design of decentralized exchanges vary, the underlying concept entails connecting a buyer with a seller across a global liquidity pool. The difference with DEXs is that rather than liquidity and orders being aggregated by a centralized entity, capital is collected via a smart contract and routed relative to the best price using an oracle.
DEXs have come quite a long ways in the past few years. The vast majority of DEXs have mitigated trust due to assets only being transferred at the time of the transaction, rather than having to first deposit assets, exchange them and then withdraw. So long as you can trust yourself to keep your private keys in check, DEXs can largely be trusted.
Many DEXs, like Uniswap, allow traders to supply capital to their liquidity pools in return for a portion of trading fees. The easiest way to do this is to find the “Pool” or “Add” liquidity tabs readily available on many DEXs with this capability.
To trade on most DEXs, users must have a small amount of Ether (ETH) to cover the transaction cost of issuing a transaction on the Ethereum network. There are certain decentralized exchanges – like dYdX – which leverage metatransactions so that users do not have to pay a transaction fee each time they are trading assets or taking out a position.
The most common stablecoin used across all DEXs is Dai. Recently, many DEXs are starting to support USDC – Coinbase’s stablecoin. While users will still have to swap Dai or USDC to tangible US Dollars on an off-ramp like Binance or Coinbase, these assets provide a great way to hedge against volatility by selling to a stable asset without completely exiting the market.