DeX are decentralized exchanges that operate on blockchain in an environment of decentralized finance. This is a relatively new economic phenomenon, which has developed rapidly over the last two years. Although the field of decentralized finance is still in its infancy, its prospects are breathtaking.
One of the risks for users is scam — a type of fraud where a new project attracts investors and then either operates as a pyramid scheme, or closes immediately taking the invested cryptocurrency away. We have chosen a number of decentralized exchanges, which have been operating for a long time and have a large capitalization. Scams of such platforms are unlikely.
This decentralized exchange was created in 2018 and is considered an old-timer in the market. Like all such platforms, it operates on a peer-to-peer network. It is notable for the fact that the first automatic market maker (AMM) was implemented on it. That made it possible to trade cryptocurrency without intermediaries. Besides, it was there that authorization through quick referencing to a third-party cryptocurrency wallet was also first implemented. There is no authorization, as such; users leave no contact information, which is the key criterion of decentralization. Other breakthrough solutions include:
- introducing smart contracts to stipulate the rules of transaction;
- liquidity pools that allow collecting enough cryptocurrency for the exchange to operate;
- flexible pricing depending on the current volume of liquidity;
- exchange management by LP token owners.
The rejection of intermediaries allowed to reduce commissions to the limit, and the introduction of the liquidity pool created another way to generate passive income.
Now that new projects have emerged, some consider the exchange outdated, yet it is still a “trendsetter” in the field. Besides, 48 tokens are traded, including stablecoins and wrapped bitcoin.
A UNI native token has a total market capitalization of $7,676,006,564 at the time of writing, with a value of about $11.
Other advantages include:
- introducing limit orders, which enables to enhance one’s profits;
- an interface for making proposals on exchange development;
- numerous extra services;
- API for developers.
This decentralized exchange was established in 2017, but it was moving to Etherium in 2020 that can be considered the starting point of its development. The developers offer fast transactions and low commissions. Thirty tokens are available for trading.
About $21,584,668,757 is locked in liquidity pools.
The key available functions are locking cryptocurrency in liquidity pools, lending and trading, which is typical for a classic exchange. One of the most “fancy” features is a solvency protection module. Fast unsecured loans taken for a single transaction are also available.
AAVE is mostly positioned as an environment for creating decentralized applications (dApps). One can even get a development grant here.
An eponymous control token has a capitalization of $2,955,411,560 and is worth just over $200.
The developers of the Compound Finance protocol made it possible for traders to borrow quickly and easily, and for liquidity providers to make money from it. The project drew just under $10 million in investment in 2018, and the second version of the protocol was released in 2019. It was the first decentralized lending protocol.
Today, the exchange operates successfully and has a simple interface friendly even for beginners, yet the gas fees are too high due to operating on Etherium; it is therefore unprofitable to invest small amounts. Each participant is credited with COMP control tokens, on which interest is also accrued. But here, too, one has to wait for a long time and to save for investment to pay off.
The exchange is convenient and profitable for traders who need to quickly take a large amount in particular tokens to trade. Liquidity providers will benefit from locking in large amounts, as the annual interest rate can sometimes be as high as 80%, depending on the pool volume, the demand for loan and the cryptocurrency prices.
A COMP LP token has a capitalization of $974,854,602 and is worth about $145.
In our view, the three aforesaid decentralized platforms can be considered the “elders” of the market. This does not mean that they bring the highest yield; due to high commissions charged by Etherium, small investments are unprofitable here. However, for larger players, this is the most reliable option, as 4-5 years in the DeFi market is equivalent to proud statements of renowned banks about their century-long history.