What is a DEX (Decentralized Exchange)?

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A Decentralized exchange or DEX is a type of a pair matching that allows users to trade cryptocurrencies and place orders. It’s without an intermediary institution controlling their funds or managing the ledger. Crypto excites people because it is a way to trade value directly. Blockchain allows strangers to trust each other without the need for a central institution.

It is an amazing technology with the potential to change the way we think about trade and structure our economy. Ironically, you have to use a real currency i.e. euros, dollars, yens or any other to enter the crypto ecosystem. This entry is usually done through a number of centralized exchanges like Coinbase or Kraken. To enter a decentralized ecosystem, you have to trust a centralized institution. It manages your accounts, takes your information and is vulnerable to hacks and slowdowns.

Image source: altcoin.io and https://www.cryptocompare.com/exchanges/guides/what-is-a-decentralized-exchange/

Basic Components

There are two basic components when talking about DEXs – centralization, and custody.

Centralization alludes to where is the order routing, matching, and execution. As the term alleges, all action takes place on a specific server using exchange software. DEXs operate on a computer network. Either directly on the chain through the use of smart contracts, or through second layer networks or trusted nodes. Around 98% of transactions take place on centralized networks. This allows some to judge this aspect as one of the most negative concerning crypto infrastructure.

Custody means that the exchange holds the ownership of the accounts keys. If you have coins in a custodial exchange, you do not own them until you have transferred them to an external wallet. In an instance of a hack, slowdown or any technical malfunction there can be serious problems of securing your assets. A non-custodial exchange acts as a service provider. It allows users to keep their coins in private wallets. Also, it helps them do transactions using verified open source smart contracts. The vulnerable point of this system is the time when assets are not in users’ wallets. 

Benefits of a DEX

DEXs offer a number of benefits to crypto users. The main one is free and direct trades, generally representing the main idea and mission of crypto. Centralized exchanges usually gather quite an amount of user data, including name, address and even bank account number. In theory, DEXs use only blockchain information, requiring only a public address. In order to comply with government regulations, even anonymous exchanges have to gather user location data. Some DEXs have tried to pose as open source software providers not liable for their users’ actions. Most of DEXs are non-custodial, giving users the responsibility for the safety of their assets. Existing on a network of separate computers, DEXs are exponentially more secure against hacking. This also means less chance for them to go down.

Top ERC20 DEXs

As you can see in the chart below, IDEX currently is the most popular exchange. However, this chart only represents the exchanges that operate with ERC20 tokens. DEXs like Stellar, Binance, Tron, and Waves native ones aren’t in this chart.

Source: https://etherscan.io/stat/dextracker

The current situation of DEXs

At present DEXs still face a number of drawbacks, being intrinsically more complex than centralized. Even the first steps are not user-friendly and can demand technical knowledge like software installation and configuration. Users typically can only buy and sell their assets, lacking advanced tools like options and margin trading. Only small volume deals with popular coins can be done, meaning low liquidity. High latency time on order processing and cancellation can lead to price changes and price slipping. This allows malevolent users with fast connections to jump ahead and make transactions before anybody else with the same intent.

Major technical problems

There are still some major technical problems that need solving before a move to complete decentralization can happen. It seems that a hybrid model could emerge. It would be with benefits from both – centralized (speed, liquidity, advanced tools) and decentralized (security, anonymity) features. Solutions like 0x protocol, Atomic swaps and Lightning could make the transition even smoother. The role of regulation is still unclear and perhaps governments will still collect KYC information, making true anonymity unreachable. The technologies being developed for DEXs will undoubtedly create a trend of innovations in the crypto world. It will help us to get closer to the dream of fast, anonymous, secure and cheap coin trading.



Photo by pixabay.com

Stocks on blockchain? Could that work?

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Recently a new Estonia-based exchange, called DX Exchange, announced that they are about to offer stocks on the blockchain. The ten top securities listed on NASDAQ will soon be available for purchase. Alphabet, Apple, Amazon, Facebook, Microsoft, Tesla, Netflix, Baidu, Intel, and NVIDIA. Additionally, they plan to add stocks from the New York Stock Exchange, the Tokyo Exchange, and the Hong Kong Exchange. This is the first time a non-CFD (Contracts for Difference) company offers stock trading. You can buy stocks with Bitcoin on the Blockchain. DX Exchange new platform will launch on January 7th. “By tokenizing stocks of some of the biggest publicly traded companies like Google, Amazon, Facebook and more, DX is opening an untapped market of millions of old and new traders around the globe cutting out the middleman,” the CEO of the exchange, Daniel Skowronski, explained in the press release. 

ERC20 to tokenize stocks

The company will use Ethereum and ERC20 to tokenize the biggest publicly traded companies. They claim that this service will work similarly to stablecoins. The tokens will be backed 1:1 by the physical assets, and instead of fiat money, they will use stocks as a peg. MPS MarketPlace Securities issues these real stocks with which DX signed an exclusive agreement to bring tokenized assets to their platform. Users will have the ability to purchase fractions of shares if they cannot afford a full stock. Moreover, above all, investors and traders now will be able to store their stocks on Ethereum wallets, meaning that users could store stock tokens in their Trezor, MyEtherWallet, or Ledger wallets. They will no longer have to trust brokers whom they have never seen in person.

Trading stocks 24/7

This new feature will allow traders to trade these top stocks 24/7. Stock markets are open from 9 AM to 4 PM, Monday to Friday, and usually, they take a day off during public holidays. However, the crypto markets are open 24/7. Also, the reports say that DX is backed by NASDAQ matching engine, which provides “functionally-rich platforms support trading in any asset, anytime, anywhere and are both scalable and flexible to adapt as the firm expands into new asset classes or looks to offer additional services,” says in the NASDAQ website.

Daniel Skowronski explained:

“The crypto community has been talking about tokenizing assets for well over a year now without much progress, so we think the impact will be huge. Tokenizing securities is the first true use case where crypto collides with the real world 24 hours a day, seven days a week. With fractional ownership and no leverage like CFDs, these new digital stocks are a more sound and safer investment that traders can take home in their wallet. This is the future of securities not just new issues but all the thousands of listed securities around the globe.”

The first exchange to provide this service?

Although it looks like this is something no company has ever tried to achieve, there is a minor step-back in this thought. A company called BitShares offers their Decentralized Exchange called BitShares DEX. They have tokenized TESLA, APPLE, ALPHABET, APPLE and many more derivatives including GOLD and SILVER. An account named “DEXbot”, who posted his answer replying to the article said: “BitShares DEX already has that. Tesla Microsoft GE Apple Google already tokenized (we even have gold silver and oil) and available for trade with the added benefit of owning your private keys hence more secure; besides that BitShares blockchain can run all Nasdaq Dow Visa and Mastercard at once.”

The comment on CCN.com

That said, DX does not sound that original anymore, but there is a slight catch to this. BitShares DEX has almost no volume to these stocks on the blockchain. It seems like users of the DEX platform added them. DEXbot also claims that BitShares have had stablecoins since 2014, but “people don’t pay attention”. On the other hand, BitShares offers a decentralized exchange which is open source in comparison to DX Exchange which is regulated and licensed. They have probably spent vast amounts of money to get their word out, unlike BitShares. Most likely, their mass media coverage is thanks to their partnership with Bloomberg.com. However, this might be precisely what stock traders want. Maybe they don’t want to learn new platforms like Decentralized exchanges and want to trade 24/7 with a regulated company. And DX Exchange is about to offer that. 



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Binance releases pre-Alpha of the decentralized exchange (DEX)

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In a recent tweet from @cz_binance which is the official account of the Binance CEO Changpeng Zhao, reads that Binance has released a pre-Alpha version of their new decentralized exchange called the Binance Chain. 

In a video which has been shared within the tweet, the Binance CEO explains that they anticipated a much longer development process. The exchange itself is still in a very early stage of development, so they like to call it more a demo than a pre-Alpha. CZ warns the users not to expect much from this release, but the ability to demo the issuing or creation of a token, listing it and trading it against another token on the decentralized exchange will be available.

Also on the video, Binance is showing the practical side of this, presenting how to do the token creation, listing and trading within the DEX.

These are the three most essential features of the new DEX, Binance Chain. As CZ already mentioned, not much is to be expected from this release, since in doesnt have a user interface (UI) yet.

Decentralized exchanges are considered as more secure than centralized ones, which are more vulnerable to hacks. Decentralized platforms are set up in a manner which allows users to retain ownership of their coins using private keys.