The Decentralized Exchange (DEX) Liquidity

Everyone knows how centralized exchanges (CEX) are always on the news showing how popular they are getting in the cryptocurrency trading world, but along with CEX decentralized exchanges (DEXs) are growing in popularity. DEXs is allowing crypto investors to set their foot into the crypto world by allowing them to trade by using DEX Liquidity solutions from order books to liquidity pools — and more.

Through decentralized exchanges (DEXs) the trading is done directly with automated smart contracts without an intermediary.  The trading is done to facilitate peer-to-peer trading, this allows the overall process to be done at a much faster rate and the whole process is more effective than the centralized exchanges (CEX) process.

But one thing to note is that not all DEX liquidity processes are the same.  While some focus on the conventional order book models, others use emergent liquidity protocols.

Some developers are focusing more on building tools that explain the disjointed liquidity model which allows the faster running of decentralized exchanges (DEXs) processes.

What is the process of decentralized exchanges (DEXs)?

As mentioned above, decentralized exchanges (DEXs) is gaining popularity along with centralized exchanges (CEXs) keeping disintermediation as the common ground for both processes.   The technique and approach decentralized exchanges (DEXs) follow are different from other buying and selling processes.

The trades will be done at a faster rate as they rely only on self-executing smart contracts to facilitate trading; this process allows traders to be done at a lower cost than centralized crypto exchanges.

Their whole process is based on a noncustodial framework, which means the trader has full custody of the cryptocurrency and is responsible for managing your wallets and private keys, this way the user will have full control of their assets.

But with full custody comes full responsibility, so if anything goes wrong, the user has to face the consequences alone. Like if your keys get lost, stolen, or damaged then no one else can assess your keys but you.  But the plus point is that you don’t have to follow Know-Your-Customer (KYC) or Anti-Money-Laundering (AML) regulatory standards, as there is no intimidator present.

Decentralized Exchange Characteristics

The factors that make Decentralized Exchange (DEXs) different from other crypto trading processes-

  • It is noncustodial; meaning the ownership of the assets can never be revoked.
  • The process is automated as there are no intermediaries present. If there is sufficient DEX liquidity present, the DEX trading process will be done instantaneously.
  • This process is globally accessible.

Most DEX doesn’t even ask for sign-ups and there are no counterparty risks present.

  • They are always open to new ideas and techniques. That’s why there are always some or the other new trends in DEX trading. Currently, it is order books, simple point and clicks swaps.
  • This trading process follows the technique of pseudo-anonymous sign-ups, meaning Users simply have to connect a wallet of their choice to start trading. While you are signing up, no kind of profile information or background will be asked.

What are the top Decentralized Exchange Picks?

The DEX instantaneous process will be done, only if there is sufficient DEX liquidity.

With so many competitors around it is important to ensure that users are trading on a trusted exchange.

By David Arroyo
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