2020 is quickly shaping up to be the year for decentralized exchanges (herein referred to as DEXs) to take the mainstage.
When it comes to exchanging digital assets with limited slippage, the blockchain ecosystem was heavily reliant on centralized players. Large exchanges such as Binance or Coinbase maintain custody of underlying assets to offer an optimized trading experience.
Following major hacks of once-prominent exchanges like Mt. Gox in 2014 and Quadriga in 2018, many Ethereum traders have come to recognize the value of non-custodial solutions offered by decentralized exchanges.
What Makes DEXs Unique?
DEXs leverage smart contracts to allow any two parties to trade assets in an entirely peer-to-peer fashion.
DEXs are non-custodial, meaning ownership of underlying assets is never revoked.
DEXs have no intermediaries which mean they little to no fees, no deposits, no sign-ups, and no counterparty risk. In most cases, tokens never leave your wallet until they’ve successfully been swapped.
DEXs can be thought of as the UI/UX interface that intuitively allows two users to interact via a trading pair with an established market value.
Similar to centralized exchanges, most DEXs come complete with a variety of trading pairs, order pairs, charts and functionalities. In practice, users generally connect to a DEX using a web 3 wallet like MetaMask.
Price and quantity are set by one party — the maker — and either accepted or dismissed by another party — the taker. Both sides cryptographically sign the trade using their wallet, whether browser-based like MetaMask, web-based like Portis, or hardware like Ledger.
Top DEXs in 2020
When it comes to the architecture of DEXs, there are a very wide variety of approaches being used on the market today.
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 some of the most well-known DEXs on the market today:
Uniswap – uniswap.exchange
Uniswap is an Ethereum-based DEX launched in November of 2018. It offers a simple one-click interface to allow users to swap any two Ethereum assets again an underlying liquidity pool.
Trading with Uniswap happens in a trustless and permissionless fashion. The project utilizes liquidity pools which allow anyone to create or seed a market by supplying it an equal value of ETH and the respective ERC20 token. Creators of these pairs earn a pro-rata portion of the 0.3% trading fees each time the market is used.
Unlike most exchanges, Uniswap does not have a native token and therefore, liquidity providers earn the fees dominated in the assets within their respective market.
Kyber – kyberswap.com
Kyber Network is a fully on-chain liquidity protocol for instant digital asset token swaps. The design is intended to allow any party to contribute to an aggregated pool of liquidity within each blockchain while providing a single endpoint for takers to execute trades.
Kyber’s DEX – Kyber Swap – saw significant growth in the latter half of 2019 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 went live in February of 2018 and has since had a strong focus on the integration of DeFi at large.
Kyber will launch new tokenomics and transition to a DAO structure in 2020.
Oasis – oasis.app/trade
Oasis is the decentralized exchange tied to Maker. Oasis features three different features, Trade, Borrow and Save which are geared at allowing Dai users to interact with Maker in a variety of ways.
Oasis Trade has seen strong growth in recent months due to the launch of Multi-Collateral Dai and is expected to serve as a leading DEX throughout 2020.
The DEX is currently largely limited to Dai trading pairs of assets which are likely to be supported as collateral on Oasis Borrow in the near future.
1inch – https://1inch.exchange/
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.
It offers swaps, limit orders and lending rates along with access to smart contract covers using Nexus Mutual.
0x Protocol – 0x Explorer
0X Protocol offers a suite of relayers for DEX operators at large. Rather than having one front-end that all users are directed to like Uniswap, 0X offers a number of endpoints for Ethereum-based exchanges to connect to liquidity reserves.
0X leverages a native token – ZRX – which is used to collect trading and relayer fees along with governance weight regarding protocol upgrades.
The list of DEXs plugging into 0x Relays seems to be growing quite consistently, indicating that 0x volume should continue to grow in the event their partners enjoy more trading volume.
OpenSea – opensea.io
When it comes to trading NFTs, DEXs like OpenSea have set a high standard for an intuitive user-interface while handling assets in a noncustodial manner.
Founded in November of 2017, OpenSea has raised roughly $4M in funding and is currently the leading exchange for crypto collectables – a market which is likely to expand drastically in the coming years.
IDEX – idex.market
Formerly known as Auroa DAO, IDEX is a hybrid, semi-decentralized exchange. IDEX provides a trustless, real-time, high-throughput trading experience in conjunction with blockchain-based settlement.
By centrally managing trade matching and Ethereum transaction dispatch, IDEX enables users to trade continuously without waiting for transactions to mine, fill multiple orders at once, and cancel orders without gas costs.
All transactions, such as deposits and trades, must be authorized by end-users and their private key, but IDEX maintains ownership of broadcasting these authorized transactions to the network. By carefully sequencing the dispatch of these authorized transactions, IDEX provides the speed and user experience of a centralized exchange combined with the security and auditability of a decentralized exchange.
IDEX currently uses two native tokens – AURA and DVIP – to further incentivize usage of the platform. AURA is staked to earn a percentage of all transaction fees on the network. AURA can be used to purchase DVIP tokens (1 DVIP = 50,000 AURA) which can be used to purchase IDEX memberships, granting users discounts on trading fees on IDEX transactions. DVIP memberships will last until 2020, granting users either free trades and no AURA rewards, 2x Market Making rewards and full trade fees or some combination of both.
Airswap – airswap.io
The platform uses a native token, AST, to provide signalling and voting rights over the protocol.
With the launch of Airswap Trader, users can Share and settle over-the-counter (OTC) trades with no counterparty risk, no deposits, and no fees.
Why do DEXs Matter?
DEXs provide seamless trading experiences without losing custody.
With DEXs, the chance of theft is drastically reduced. So long as you’re smart about your private key security and accessibility, the chance at your funds being stolen is virtually zero.
DEXs provide access to global trading pairs regardless of geographic location.
DEXs are psyeudo-anonymous. They do not require any emails, logins or KYCs to use.
DEX Enhancement Tools
We’ve seen a number of tools built to enhance DEX capabilities at large. These include:
RenVM aims to bring interoperability to DeFi applications. The Ren Virtual Machine is not a product or an application in and of itself. Rather, it is a network (and an accompanying SDK) that allows developers to bring multi-chain functionality to their applications.
“Our vision for Ren is a private and interoperable liquidity layer for the decentralized world. Powering the free movement of value between blockchains in zero-knowledge.”
The first use of the RenVM – Chaos – can be used here.
What makes RenVM unique is that it does everything in secret using zero-knowledge proofs and a newly developed sMPC protocol. The state, inputs and outputs of all programs in RenVM are kept hidden from everyone, including the Darknodes that power it. This allows RenVM to securely manage private keys on different blockchains, making it possible to shift tokens between these blockchains in a trustless and decentralized way.
All fees paid using Ren are dynamic (minimum fee of 0.1%) when exchanging between two different blockchains and Dai based when using general-purpose scripts.
Check out our interview with Ren Project here.
0x & 0x Mesh
0x is a protocol that facilitates low friction peer-to-peer exchange of ERC20 tokens on the Ethereum blockchain. Trades are executed by a system of Ethereum smart contracts that are publicly accessible, free to use and that any dApp can hook into. DApps built on top of the protocol can access public liquidity pools or create their own liquidity pool and charge transaction fees on the resulting volume. 0x currently powers DEXs such as Radar Relay.
This past March, the 0x team announced plans for 0x Mesh, a Docker and eventual browser-friendly node system, which is said to massively reduce the effort required to tap into the 0x networked liquidity pool and the technical work associated with maintaining a compliant endpoint.
0x currently relies on relayers to follow a Standard Relay Agreement (SRA) for transactions to be processed using 0x Instant. As such, the network saw a lot relayers suffering from outdated code, resulting in many orders taking longer to surface. With 0x Mesh, more orders will be surfaced in a quicker, more intuitive fashion. Unlike the existing SRA, 0x Mesh features a push-based messaging system and a dynamic set of peers which do not need to be known ahead of time. This is said to make it much easier to connect to and share orders with other members of the 0x ecosystem.
Each node in the network will score its neighbors based on the quantity and quality (validity, novelty, etc.) of the orders it shares. Since relayers provide a single-access point into the network for their users, they are said to more naturally move towards the core of the network graph, and as a result, be able to offer a better trading experience.
0x Mesh is currently in beta and can be followed here.
Dedicated to bringing interoperability to Ethereum in a permissionless fashion, Provable Tokens – better known as pTokens – allow assets like Bitcoin to be represented on Ethereum in a permissionless fashion.
The project recently launched on mainnet, and we conducted an interview with their team here.
Decentralized Exchange Volume Comparisons
DEXs are likely to experience serious growth in 2020. It’s become common for popular DeFi assets to favor DEXs outside of centralized exchanges, an indicator that should Ethereum continue to grow in a similar fashion, DEX volume is likely to follow.
Outside of the DEXs highlighted above, we’d also like to provide a shortlist of other DEXs with their respective protocol focus. For the sake of the relation to DeFi, we’ve chosen to focus our “Top DEX” attention on those DEXs built on the Ethereum.
- BinanceDEX (Binance Chain)
- OceanEX (VeChain)
- Switcheo Network (NEO, EOS and Ethereum)
- Bamboo Relay (Wrapped Ether)
We’ll continue to add to this list on a regular basis. If you’re interested in having your DEX added to this list, please fill out a request on our contact form.
Cooper is focused on building compelling blockchain products. He currently works as the managing director at Fitzner Blockchain Consulting and is a contributor to DAOs like MetaCartel and Moloch. He is an active member of the Ethereum community and has a strong interest in for-profit businesses such as The Block Crypto and Messari.