The Best Decentralized Exchanges – DeFi

Introduction

Decentralization is a concept that takes control of a centralized entity and transfers it to a distributed network. Similarly, Decentralised Finance (DeFi) is a collective term that involves assets, products, protocols, and smart contracts to build a system open to every Ethereum-based user. There is no centralized authority and involvement of any intermediary broker in your finances which gives you full control and authority over your assets and trades.

DeFi is undoubtedly the epitome of technical excellence in cryptocurrency that has tackled a myriad of problems previously faced by crypto users. It is an open system that has removed the insane security checks, geographical limitations, hefty commissions, and unnecessary complexities faced by the users in the previous system. These factors raised a lot of concerns in terms of time, security, and money before DeFi.

Transferring money is the first building block of a financial system. For that, DeFi has pioneered plenty of innovations in the cryptocurrency and blockchain industries, and DEX is one of them. The following article is about Decentralized Exchanges, and we have also listed the most popular decentralized exchange.

What are DEX Exchanges?

DEX is the abbreviation of "Decentralized Exchange," a cryptocurrency exchange that allows direct financial transactions between two private parties. The asset exchange is inherently decentralized, meaning there's no central authority having any power over this system, and the exchanges make a trade on the blockchain itself. The transactions take place privately online without any intermediary.

Concerns have been raised regarding traditional crypto exchanges since they are centralized, meaning they keep the third party to facilitate the trading between two individual parties. These intermediaries hold the assets until complete verification, and in exchange for providing this service, they take their cut from the transaction. Moreover, there’s no concept of the user’s anonymity as these exchanges seek every user’s identity and store his personal information on a centralized server. Due to this, there have been cases of exchange hacks.

However, decentralized exchanges have tackled this issue by removing third-party mediators so the user may remain in possession of his funds. This system supports safer trading and saves some amount of your cash since there’s no intermediary involved to take his cut. This non-custodial exchange guarantees the anonymity of the user and gives him full control over his trading. Consequently, there is a considerable increase in market efficiency in the best decentralized exchange through this innovation.

Speaking of a centralized and decentralized exchange, both exchanges facilitate the buying and selling of cryptocurrency, but there are some obvious differences between the two. CEX is suitable for novices as it provides an easy and simple way to trade assets. Moreover, CEX also supports amazing customer service and swift transaction speed. Whereas DEX is more suited for experienced crypto enthusiasts who’re more concerned about their privacy. It’s a self-service system that gives them full authority over their trade and does not bind users to any financial regulations.

What is the Importance of KYC in DEX Exchanges?

Know Your Customers, KYC, a global policy of verifying the identity of the customers through their documents like ID, phone number, license, etc. This is essentially needed for transferring money to prevent any financial fraud and identity theft. Due to this, many crypto exchanges have started implementing KYC. KYC exchanges do not allow buying or selling anonymously but providing your personal information is not safe either.

KYC exchanges claim to be well-protected and secure, but that does not mean one should completely depend on them. The user must do his rigorous research and choose a reliable exchange as providing your personal information to the wrong exchange can cost you a lot. However, KYC exchanges can frustrate the user with repeated questions and verifications because of the strict security policy.

On the other hand, KYC-free exchanges save the user from this headache. These exchanges do not question you when you're buying or selling your coins and save you from going through the KVC and AML processes. KYC-free exchanges are non-custodial and do not ask the user to give his personal information.

Decentralized exchanges (DEX) are KYC-free as it is obvious that there is no central authority over these exchanges to dictate them. For this reason, DEX is getting popular among users who value their privacy and personal content. Since many exchanges in the market implement the KYC legislation, it can be hard to find legit exchanges that are KYC-free. If you're concerned about your personal information, then you can find the best DEX exchange here that will always keep your identity anonymous when buying or selling cryptocurrency:

1. Binance

2. IDEX

3. Block DX

4. ByBit

5. Changelly

What is the Significance of Wallets in DEX Exchanges?

The privacy should be your utmost priority when using any exchange, be it DEX or CEX. Thefts and hacks across the cryptocurrency are really common, and to save oneself from that, one should use security measures. For that, a cryptocurrency hardware wallet is the best security measure one could take. It's a fact that no other wallet is as safe as a hardware wallet since it keeps the access to your assets offline and only goes online whenever you’re making a transaction, which the software wallets are unable to do.

A hardware wallet is a physical device that stores your private keys and keeps them safe from hackers. Private is only kept in your wallet and does not reach any other device, which keeps it immune to viruses and safe from hackers and cyber attackers. Moreover, it also provided pin encryption for maximum security, and the device will automatically self-destruct if anyone tries to enter the wrong pin multiple times.

The best part about hardware wallets is that there are no limits. You can add as many cryptocurrencies as you want to and keep them safe. Using a hardware wallet with DEX protects your crypto assets through its insane security measures. Moreover, if you have a handsome amount of funds, it is advisable to use multiple wallets to be safe.

When making a transaction, hardware wallets encrypt your Bluetooth communication and keep a visual check on the transaction details side by side. Even the best decentralized exchange are not 100 percent safe, and if you want to trade among the DEX exchanges, then it is preferred to use the following wallets:

1. WalletConnect

2. Ledger

3. Metamask

4. Coinbase Wallet

5. Trezor

6. BSC (Binance Smart Chain) Wallet

How to Use DEX Exchanges?

DEX exchanges are classified into two types, Order Book and Swaps. Order Book is used by the first generation of DEX exchange and contains the record of the buying and selling of the cryptocurrencies and organizes the trading assets according to their prices. As a result of organizing the assets, the trader can easily trade them as long as they are in stock and demand.

Order Book maintains the minimum slippage between the trading and the executed price, which further aids in maintaining the high liquidity of the exchange. Substantially, through the order book, the user can enjoy the benefits of DEX and CEX simultaneously.

Swaps are the type of DEX exchange used by the second generation that uses liquidity pools to facilitate their trading. Liquidity pools are an appreciable invention of DEX that provides flexibility to the liquidity of funds and determine their price. As the name suggests, Swaps support swap trading, meaning these exchanges occur by swapping assets between the parties' wallets with the funds held in the "smart contract."

There are plenty of top decentralized exchanges in the market, but you cannot take full advantage of them as long as you don't know how to use one. So here's a guide on how to use a DEX exchange:

1. Sign in to your DEX exchange by adding your wallet address.

2. You submit a purchasing or selling request by placing an order to exchange your asset with another asset. For that, you're supposed to specify the number of tokens, the cost of each token, and the bidding time.

3. Once the order is set, other users can start bidding on it. Once the bidding time is over, the bids are reviewed, and the best of all is selected.

4. The Smart Contract between the interested parties is executed, and the crypto assets are transferred successfully in no time.

5. After you’re done with the order, you may disconnect.

Is it Safe to Use the Best Decentralized Exchanges?

The safety of even the best decentralized crypto exchange is quite controversial. DEX is undoubtedly safer than traditional crypto exchanges because traditional exchanges are centrally managed, involving intermediaries, making these exchanges vulnerable to hackers and cyber attackers.

Whereas decentralized exchanges are secured by the users themselves as each user takes responsibility and appropriate privacy measures for the security of their assets. There is no involvement of any third party or the need to submit your personal information on such a platform. Moreover, the peer-to-peer system of DEX protects the user from unnecessary market manipulation like wash trading.

However, the opinion regarding DEX’s security is still divided because there are several cases and possible risks of decentralized exchanges. There are plenty of prevaricators in the market that sell fake tokens at a higher price than the average market, claiming them to be real ones, and inexperienced users can easily fall prey to these sham tokens. DEX does not even take the responsibility of transaction delays or providing the data of the pair trading. Furthermore, most decentralized exchanges do not offer to reverse the transactions if a mistake has been made as there's no such feature.

Now the question arises, is the investor responsible for the frauds done by the other party? The answer to this is, every exchange is prone is risks, be it CEX or DEX. The only way to avoid such unfortunate situations is to be diligent and serious towards his trading and do hi due research before accepting or making an offer.

FAQ

Which top DEX exchange to choose for ERC20 tokens?

An ERC20 token is a standard for creating Ethereum based smart contracts. Exchanges for ERC20 tokens are quite pricey, but to choose the best DEX exchange, one must look for the transaction fee, trading volume, liquidity, and security. For that, “Uniswap” is the best option exchange for ERC20 tokens.

Which decentralized exchange to choose for BEP20 tokens?

BEP20 token is a standard based on Binance Smart Chain to extend ERC20.To choose the best decentralized crypto exchange for BEP20 tokens, one must research authenticity, user interface, supported tokens, fee structure, and the restriction of the location. Keeping these factors in mind, "PancakeSwap” is the best option for BEP20 tokens.

Which decentralized exchange to use for 0x tokens?

Before choosing an exchange for smooth peer-to-peer trading; technology, transparency, anonymity, and reliability should be the top priorities. 0x itself is a DEX exchange and is usually preferred for a 0x token. So the best decentralized exchange for 0x is none other than 0x exchange itself.

Are top decentralized exchanges safe?

It's a no-brainer here that DEXs are considered to be safe and secure exchanges. Only the user has control and access to his private, which leaves no room for risks for his funds. However, there are still fraud cases as even the best DEX exchanges face security issues like flash loans, fake tokens, rugpulls are phishing, etc.