Here at Token Metrics, we understand that our most valuable asset is you, our audience.
With your help, we have put together a guide to the Top 3 Decentralized Exchanges of 2020, as voted upon by you.
So sit back, relax, and enjoy the Moon Awards.
What is a Decentralized Exchange (DEX)?
A decentralized exchange or DEX works in the same way as a regular crypto exchange, but with one crucial difference, it requires no central authority. A DEX allows a user to execute crypto trades without a central authority, which removes the need for users to give up custody of their tokens.
DEXes remove this need by allowing cryptocurrency holders to trade directly with each other on a peer-to-peer basis.
Unfortunately, the decentralized nature of DEXes comes with its own set of challenges that often require the exchange to sacrifice speed, pair variety, and sleek interfaces. DEXes are also unable to conduct trades between crypto and fiat currencies because fiat currencies inherently require an intermediary.
These tradeoffs are well worth it for DEX users as sacrificing these features allows DEXes to offer much more in terms of security and anonymity.
For many users, trading crypto can appear very precarious as the horror stories of hacking and security lapses have resulted in losses in the multi-million dollar amount. DEXes address these concerns by removing the vulnerable central authority that, when hacked, resulted in devastating losses.
Top 3 Decentralized Exchanges of 2020
1) Binance DEX
“Binance DEX is a heavily used non-custodial exchange. Many of their users migrated from Binance. This migration is how Binance DEX has more liquidity than many other DEXes.” – Sam Monac, Head of Research, Token Metrics
Released in February of 2019, Binance acts as a decentralized order-matching system based upon Binance Chain technology.
To make this extension of Binance decentralized, the Binance team created a new blockchain and peer-to-peer system which sees matching occur within the blockchain nodes. This innovation allows all transactions to be recorded on the blockchain while preserving the core tenets of a DEX.
This aspect is also what makes Binance DEX stand out as most DEX platforms use Ethereum blockchain, but Binance instead leverages their native blockchain mentioned previously.
There are several benefits to Binance DEX as it boasts low latency, high throughput, low fees, and the ability to hold your keys or funds. One of the unique aspects of Binance DEX comes in terms of its user interface.
Binance DEX possesses a UI that is very similar to the interface of its parent exchange, Binance. The UI of Binance DEX closely resembles that of current centralized exchanges and incorporates TradingView charts.
While the platform allows users to create their wallets, it also supports alternative wallets and integrates with Trust Wallet and the Ledger Nano S.
“IDEX is a DEX that every one of our advisors and founding team used at one point during the 2017 bull market. It was the first Ethereum-based decentralized smart contract exchange that supported real-time trading.” – Sam Monac, Head of Research, Token Metrics
Arriving in 2nd place with a little over 25% of the total vote is IDEX. Launched in September of 2017, IDEX has been rapidly increasing in popularity amongst DEX users.
One of the reasons IDEX is so popular is the exchanges deep liquidity and support for tokens. According to numbers reported at the end of 2019, IDEX has amassed nearly 50 bitcoin in liquidity and supports just under 400 different token pairs.
Like other DEXes, IDEX users manage their funds through their platform’s Ethereum-based smart contract system. Access to this system is guarded by the private key contained in your wallet.
With IDEX, there are only four ways to open a wallet with the exchange. You can open a wallet by using MetaMask, a Keystore file, a Ledger Nano S, or manually entering your private keys.
IDEX offers one of the most complete trading experiences of all DEXes as it allows users to view trading pairs, the state of various order books, and to set up market or limit orders. The order book also updates in real-time, which allows buyer and seller matching to be more efficient.
The complete trading experience of IDEX does come with some downside as IDEX is one of the more centralized exchanges in the DEX community. This centralization is because the complete trading experience of IDEX is only possible by having many of its operations controlled by a central authority.
The control of operations by a central authority means that users are still at the whim of the platform to ensure orders execute correctly. It is important to note that IDEX’s model is still far more secure than any centralized exchange even as a more centralized DEX.
3) Kyber Network
Kyber Network has become one of the primary on-chain liquidity protocols in the DeFi space. Kyber offers diverse multifunctional use cases and will also launch Katalyst in 2020. This major upgrade will introduce a new staking mechanism, decision making powered by KyberDAO, improvements to liquidity contributions, and customizable fees. This will increase the network’s liquidity, stakeholder participation, and improve the value of the native KNC tokens. In my humble opinion; KNC deserves a spot in everyone’s portfolio. – Diego Lara, Token Metrics Advisor
In a somewhat distant 3rd place is the DEX, Kyber Network. Kyber Network was founded in 2017 with the ICO of its native token KNC but did not launch its coin swap services until April of 2018.
Kyber Network aims to be the next generation of decentralized exchanges and takes a vastly different approach than other DEXes.
The Kyber protocol is a stack of smart contracts that can operate on any blockchain. This protocol means that with Kyber, all trades are conducted on-chain and are only available to blockchains with smart contract capabilities.
The Kyber protocol is where the Kyber Network gets interesting as the Kyber DEX is not really an exchange as it approaches the settling of various tokens from a very different angle.
A full explanation of the Kyber Network and protocol is on their website, but here is a quick summary.
Essentially, users trade tokens via various actors in the Kyber Network. These actors serve as Registered Reserves (liquidity providers), sellers, and maintainers. Maintainers are the crucial part of the transaction as they are the ones who grant access to Reserve applicants.
When all these entities come together and execute via a smart contract, a token exchange occurs. This concept can be quite challenging to understand through just text, so it can be helpful to look at the diagram Kyber provides.
Honorable Mention: Uniswap
“Uniswap is the premier DeFi exchange. They recently launched version two which supports flash loans. Uniswap is the DEX to watch to see where DeFi goes.” – Ian Balina, Founder and CEO of Token Metrics
After being narrowly edged out by Kyber Network for a spot in the top DEXes, Uniswap has more than earned its place as an honorable mention.
Uniswap launched in November of 2018 and was just recently replaced by Uniswap Version 2 on May 18th of this year. Uniswap founder Hayden Adams described Uniswap Version 1 as a “proof-of-concept” with Uniswap Version 2 being a significant improvement.
The main headline of Uniswap Version 2 is that it comes with more token-swap pairs, an oracle service, and an added flash loan functionality.
Uniswap’s oracle service design is to flexibly deliver average prices over any length of time, which allows Uniswap to focus on its core directive as a price discovery mechanism.
Flash loans are a somewhat controversial addition as they have been used to attack various protocols, but at their heart, they enable flexibility and composability. An experienced trader could also watch the market to see where prices get out of sync and take advantage of the opportunity for immense profits via flash loans.
A flash loan permits a user to borrow any amount up to the total liquidity available if the whole sum returns in the same transaction.
Uniswap is a genuinely unique DEX, and with the recent release of Uniswap Version 2, it is one to look out for as an increasingly popular alternative in the DEX realm.
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