The decentralized exchange (DEX, decentralized exchange) is a platform that operates on the basis of a distributed registry. The main feature of such sites is that they do not store personal data and customer funds on their servers. They play the role of a service for matching applications and no more. Trading is carried out directly between the parties to the transaction (peer to peer) without various intermediaries. Actually, the whole idea of cryptocurrency is to get away from intermediaries and not pay additional fees for the transaction. At DEX, smart contracts perform the functions of an intermediary and guarantee of financial obligations.
It is worth noting that not all sites that call themselves decentralized, in fact, are such. Many use private servers to store data on trades and applications for the purchase / sale of cryptoactive assets, although private keys are kept by the users themselves.
Centralized exchanges are managed by their creator. First of all, they are focused on making profit at the expense of commissions from the deals made. In this regard, the original idea of cryptocurrency is lost, which consists in avoiding centralized structures and intermediaries. A guarantee of the fulfillment of financial obligations must be carried out by a program code that is not subject to human factors like greed, greed. In centralized exchanges, the work of the platform is regulated by specific individuals, only they make important decisions about the future development of the platform. For example, such situations often arise when the exchange unexpectedly leaves for technical work, and traders do not have the opportunity to cancel or place bids. However, the market at the same time does not cease to function, in connection with which there may be unexpected losses, or vice versa, traders may lose profits. It is also worth noting that the centralized sites are subject to hacking and hacker attacks, since information about users and their funds are located on the servers of the exchange owner and this attracts intruders.
Decentralized exchanges are managed automatically, the participants of the platform themselves participate in the process of making important decisions. Also at DEX, the interaction between buyers and sellers takes place directly. A blockchain is used for storing and processing data, which cannot be cracked.
- Funds are not stored in a centralized structure, and the users. Therefore, no hacker attacks or platform crashes pose a significant threat of financial loss.
In other words, DEX is a platform for the exchange of cryptoactive assets, in which users fully control their funds and are fully responsible for them.
- Users of decentralized exchanges are deprived of a number of tools that can help to profit from the transaction. For example, stop orders (Stop Loss, Take Profit), provision of borrowed funds (margin trading / trading with leverage).
- At DEX transactions occur using smart contracts. Cryptocurrencies that do not support smart contracts cannot bargain on such sites.
- The functionality of decentralized platforms is much more complicated than their centralized counterparts. Sometimes it seems that they are sharpened by the blockchain of developers and programmers, and not by ordinary users.
Decentralized exchanges are designed to ensure that the user himself controls his funds and does not trust them to third parties. However, the limited capabilities and complex functionality are more likely aimed at experienced users who have some idea of smart contracts, understand technical intricacies and in which case they can take responsibility for their actions without being able to contact support to clarify some issues.
It is also worth noting that many DEX have critical vulnerabilities that are not manifested at first, but noticeable to hackers. When choosing a decentralized platform, you should carefully analyze everything in order not to lose your assets.
As for the regulation of decentralized exchanges, for example, in the USA they are trying to apply the already existing base, while in Singapore they are trying to create a new regulatory and legal framework for such exchanges. Nonetheless, there is no unambiguous position regarding DEX in these countries, and in other countries such exchanges are not regulated at all.
This is all due to a number of difficulties and the specifics of decentralized sites due to the fact that in most cases such exchanges do not belong to specific legal or natural persons, which entails certain problems with determining those responsible for any violation. There is no way to check trading activity and identify possible violations. In most cases, existing rules that apply to centralized exchanges are not applicable to DEX.
Among the ardent supporters of the cryptocurrency community there is a perception that the future of cryptocurrency exchanges is a cross between centralized exchanges and decentralized functionality, when the user will be given the opportunity to choose between the functionality of both sites.
And yet, despite the fact that decentralized exchanges are considered the most successful solution for servicing the masses of cryptocurrency users, a number of certain difficulties will not be solved yet, including blockchain scaling and user interface problems, most likely, will remain a purely niche product.
Anyway, if we weigh all the pros and cons, then there is a very good choice in favor of these exchanges. For each, just different nuances are important, and therefore choose different resources.
It is generally impossible to trust anyone and it is good that they come up with such exchanges and provide such opportunities, because how many honest people have suffered.