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Chainanalysis published a report saying that the number of decentralized exchanges(DEX) is growing faster than “any other type of cryptocurrency exchange.” The DEXs has doubled to around 205 from Q1 2019 to Q3 2021 while the still popular CEXs has only risen 20% to 120.
Everyone in the circle senses that DEXs have gained a lot of popularity in recent years. The respective 24H trade volume on top three DEXs, Uniswap, dYdX and PancakeSwap are comparable to the prominent CEXs, such as FTX, Coinbase and Kraken.
We know that CEXs and DEXs take different approaches to buying and selling digital assets. However, they do share a lot of similarities. Both of them offer order books (AMM for DEXs), a trading venue, a matching system and security functions.
A DEX works as a dApp on a blockchain though and users don’t rely on intermediary organization. The orders solely depend on self-executing smart contracts. DEXs are under a non-custodial framework which means users need to take care of their wallets and private keys themselves. It sounds pretty risky but there are multiple reasons behind the DeFi frenzy.
Advantages of DEXs
Firstly, anonymity. There is no so-called KYC procedure, no registration. All the users need is a public address. Without offering any personal information, you can start trading on a DEX.
Secondly, better privacy. Users don’t have control over their private keys on a CEX while they can fully control their funds in the world of DEXs. And transparency, since all the transactions are secured by the smart contracts, everything is logged, traceable and transparent.
Drawbacks of DEXs
Of course, it has disadvantages, such as high technical barriers to join. After browsing multiple DEXs, you can tell most platforms are not very beginner-friendly, offering a frustrating user experience and on top of that, providing little customer support.
No fiat currency exchange is another major drawback for many users. DEXs usually have lower liquidity than CEXs and transactions take longer to be validated since it depends on the network’s nodes. DEXs also maintain the same scalability problems.
CEXs Eyeing DEXs
As more people are interested in DeFi, the popularity of DEXs surely increases. CEXs is the central system to oversee the whole trading process which in fact contradicts what a world of blockchain has been pictured and interpreted. Though CEXs ensures greater market depth and faster transactions. And of course, CEXs seem to be easier to win the authorities' hearts compared to DEXs.
However, DEXs work in line with Bitcoin creator Satoshi Nakamoto’s belief, also the faith of crypto lovers’. Seeing the higher needs for DEXs, the largest CEX, Binance, launched its own DEX in 2019. One of the rising CEX FAMEEX as another example believes DEXs may gradually take over the market of trading platforms and will become a mainstream choice in the near future.