{"id":9087,"date":"2022-08-09T23:08:13","date_gmt":"2022-08-09T17:38:13","guid":{"rendered":"https:\/\/aayushbhaskar.com\/?p=9087"},"modified":"2022-08-09T23:08:13","modified_gmt":"2022-08-09T17:38:13","slug":"dex-introduction","status":"publish","type":"post","link":"https:\/\/aayushbhaskar.com\/dex-introduction\/","title":{"rendered":"Decentralized Exchanges (DEX) 101 – Explained for Beginners","gt_translate_keys":[{"key":"rendered","format":"text"}]},"content":{"rendered":"
Earlier, I shared two posts that dealt with cryptocurrency wallets<\/a>. <\/span><\/p>\n Understanding what they are, how they work, the features they support, and the best options out there<\/a> was essential for us to move to the next step.<\/span><\/p>\n That next step is trading cryptocurrencies through decentralized exchanges (DEXs). <\/span><\/p>\n Having already covered advanced topics like Yield Farming<\/a>, staking<\/a> & NFTs<\/a>, this post will round up our discussion on the subject for the time being. Later on, we shall pick up on DAOs and new-age technologies.\u00a0\u00a0<\/span><\/p>\n So let’s put on our learning hat and get busy!<\/span><\/p>\n A DEX, short for decentralized exchange, is a DeFi protocol without any functioning central authority. <\/span><\/p>\n In other words, it is just like a fruit market, where buyers and sellers engage in trading a particular fruit at an agreed-upon price.\u00a0<\/span><\/p>\n Your question should be, how is this different from a centralized exchange, and the answer is as follows:\u00a0<\/span><\/p>\n In other words, a DEX is a decentralized market. No central authority. Just buyers & sellers.<\/span><\/p>\n The earliest DEXs were based on a P2P layer. They envisioned markets where buyers & sellers could interact at mutually agreed upon prices for the coinage they wanted to exchange.\u00a0<\/span><\/p>\n However, the industry realized that this created the issue of barter, that is:\u00a0<\/span><\/p>\n I should be willing to sell something that someone else needs I exchange for something that I need. In economics, this problem is called the double coincidence of wants.\u00a0<\/span><\/i><\/p>\n DeFi enthusiasts had an innovative solution called liquidity pools to solve this problem.\u00a0<\/span><\/p>\n In a nutshell:\u00a0<\/span><\/p>\n Thus, liquidity pools ensure that there is no double coincidence of wants. Trading is thus facilitated instantly without any central authority.\u00a0<\/span><\/p>\n In truth though, most DEXs operate as a hybrid. You can wait for someone to come along and trade with you through the P2P layer or trade instantly by tapping into the liquidity pool.<\/p>\n Yes. A DEX will not ask you for your KYC information. It is a simple plug-and-play with your wallet. Recall, it is, after all, a fruit market.\u00a0<\/span><\/p>\n However, that does not mean that you begin your career in crime here (anywhere for that matter!). You would benefit from reading this post<\/a> on KYC, and I will touch upon the matter further below.\u00a0<\/span><\/p>\n What many people fail to understand is that a blockchain is public. This means that the record of your transactions on an Ethereum-based DEX, for example, will be posted on Etherscan<\/a> with your wallet address.<\/span><\/p>\n In fact, this public nature of the blockchain ensures that a money trail is available & all you need then is the identity. Blacklisting your wallet will be enough to make you cower out of your den.\u00a0<\/span><\/p>\n This public nature of the blockchain has been very effective for law enforcement, and the best part is that the industry as a whole continues to collaborate on this matter. No wonder illicit trade in cryptocurrencies is estimated to be just 0.15%<\/a>.\u00a0<\/span><\/p>\n Thousands of DEX protocols exist on every blockchain. All of them boast the same basic utility and are hence homogeneous.<\/p>\n As per CoinGecko, Uniswap<\/a> is the leading exchange with the bulk of the market share. The Binance Chain-hosted PancakeSwap<\/a> comes second.<\/p>\n <\/p>\n1. What is a DEX?<\/b> \u00a0<\/span><\/h2>\n
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2. DEX Types<\/b><\/h3>\n
2.1. P2P<\/b><\/h3>\n
2.2 Liquidity Pool Backed DEX<\/b><\/h3>\n
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3. Does a DEX Really Not Require KYC?\u00a0<\/b><\/h2>\n
4. What Are Some of The Popular DEX Protocols?<\/b><\/h2>\n