Decentralized Exchanges (DEXs) - Introduction

Cryptocurrencies, starting with Bitcoin, were originally about one thing in particular: Decentralization.

This ambition seems to be a bit lost nowadays. Yes, there is a new, emerging sector called ‘DeFi’ (short for ‘decentralized finance’). However, not many people seem to grasp the advantages of decentralization over centralization, but instead still trusting centralized entities; even after the FTX fiasco.

A big part of DeFi are the decentralized exchanges (DEXs). Here, users can trade in a decentralized environment with an exchange running on code (= smart contracts), and there is no central entity controlling your funds with the ability to freeze your wallets or delay withdrawals.

DEX vs. CEX

‘Not your keys, not your coins’ is more than just a sarcastic meme. It is the truth, even if it is not about misbehaviour of CEXs, per se. Lockups and long waiting times for withdrawals are experienced even on the ‘most legit’ exchanges out there, something that won’t happen when using a proper DEX.

In the future, further problems might follow: our industry faces more and more regulation from government bodies worldwide. Especially in the last weeks we have seen once again more activity from regulators in our industry.

I believe in a future in which people are able to transact freely, in order to preserve their liberty rights. CEXs will have to bow down - DEXs not!

How Does A DEX Work?

As mentioned earlier, decentralized exchanges operate with the help of smart contracts and allows traders to trade without a middleman. The funds for trading never leave the trader's wallet when using a DEX, unlike a CEX where you have to trust that funds will not be misused.

Generally, there are three different types of decentralized exchanges, namely Automated Market Makers (AMMs), Order Book DEXs (On-chain & Off-chain Order Books) and DEX Aggregators; there are many resources out there already that describe the differences between those three.

DEXs are available on many different networks; to decide which one you want to use is the first step, followed by choosing a DEX and setting up a wallet compatible with the chosen network (i.e. Ethereum; Uniswap; Metamask). Most wallets come with browser extensions and are pretty easy to use.

DEX: Advantages & Disadvantages

Advantages

• Token Availability: Many new tokens that are not directly available on centralized exchanges can be directly traded on DEXs; this also comes with the risk to become a victim of rug-pulls - so always double-check what exactly you are trading.

• Anonymity: Different to CEXs, you will never need to perform a KYC (Know Your Customer) procedure, revealing your personal data. However, make sure to use ‘fresh’ wallets, as networks like Ethereum itself just offer pseudonymity, not anonymity.

• Self-Custody: You are in control of your funds, nobody else. There is no risk that somebody like Sam Bankman-Fried steals your funds.

Disadvantages

• Unvetted Tokens: Any person can create a token and get it listed on a DEX. They are full of scams, hands down. Always verify the smart contract address and make some fundamental analysis on tokens you are planning to buy.

• Smart Contract Vulnerabilities: Smart contracts are coded by humans and humans make mistakes. There were a lot of cases in the past in which smart contracts had vulnerabilities, giving others the option to exploit those. Even if a DEX was audited by a reputable firm, it can still happen. That said, you are just at risk if you provided liquidity on the exploited DEX.

Can DEXs Be Used For Leveraged Trading & Perpetual Contracts?

The short answer: Yes!

Many traders use instruments like perpetual contracts and leveraged trading on CEXs, however, DEXs are continuously evolving and are also offering those trading options.

One of those DEXs is ApeX Pro, incubated with the help of ByBit, but with independent team.

It comes with:

• Self-Custody of Assets, no KYC

• Secure & Private (StarkWare L2), ZK Proofs

• Multi-Chain Support

• High Performance, Low Fees

• Up to 30x Leverage

Leverage trading comes with risks. If you don't know what you are doing, don't. If you want to learn, prepare to lose money first. Don't trade with money you can't afford to lose!

If you think you are up to it, feel free to use my referral link:

https://pro.apex.exchange/trade/BTC-USDC/register?affiliate_id=700&group_id=1294

The Future Is Decentralized

We shouldn’t rely on centralized exchanges that much. Cryptocurrencies were all about decentralization, it would be foolish to give up on this fundamental idea.

For beginners it might be a bit more less convenient to use DEXs at first, but it is really worth it to get into it!