Decentralized Exchanges Are Evolving at Last
October 10th, 2019
The humble DEX has come a long way since the days of Etherdelta. While not all of those steps have been forward – such as the enforcement of KYC on IDEX – the scope and quality of decentralized trading platforms have evolved greatly. As an examination of several new and emerging platforms shows, DEXs can finally hold a flame to CEXs.
Decentralized Finance Has Revitalized Decentralized Exchanges
ERC20 token trading platforms still constitute the bulk of all DEXs, but that’s starting to change. The decentralized finance (defi) movement, which is synonymous with Ethereum, is also permeating other chains and domains, resulting in the creation of some interesting decentralized exchanges. As a case in point, the new platform that blockchain project Fetch.AI is launching will be for trading metals – and not just speculatively, but with physical delivery.
“The decentralized exchange will change the way metals and other commodities are traded and funded,” promise Fetch.AI, and they have the backing of some serious players, including several leading Turkish steelmakers such as Baştuğ Metallurgy, an iron and steel manufacturing giant. The DEX, which is scheduled to launch in a few weeks, will integrate electronic shipping documents and live monitoring tools, providing an end-to-end trading and consignment system for metals. The decision to deploy a DEX rather than a centralized exchange (CEX) was to provide full on-chain transparency and allow trustless participation for various industry players.
The same principles can be seen at play in the other DEXs springing up across the cryptosphere. In September, for example, Nash finally launched, based around an ethos of “secure self-custody and borderless finance.” Nash supports cross-chain trading between Ethereum and NEO. It uses an off-chain matching engine to combine the speed and functionality of a centralized platform with the noncustodial benefits of a decentralized exchange. Decred’s first DEX is also in its advanced stages, with the goal of enabling “a trustless trade process designed to cut out the bots, the middlemen, and the centralized power.”
From Bitmex to Bitdex
Anything that centralized exchanges can do, decentralized exchanges can do too. Not as quickly, necessarily, and not with the same liquidity, but these trade-offs are worth it for traders who favor security and privacy. With CEXs becoming a KYC-riddled nightmare – Bitmex is believed to be the next platform to bow to regulatory pressure – DEXs are one of the last refuges of privacy for traders. There are exceptions of course, including IDEX, and KYC is required on Nash to access fiat currency options, but for the most part, DEXs still reside on private land.
Hopefully Bitdex will maintain that tradition, should it come to pass. The proposed platform will operate as a decentralized version of Bitmex, with “priceless financial contracts,” no centralized operator and solvency ensured through an on-chain price feed. At Devcon in Osaka on October 8, defi contracts platform UMA Protocol further built upon this proposal, explaining how priceless contracts can be applied to create efficient synthetic tokens, futures, and swaps. Similar work is currently being done by Synthetix, which has issued around 20 “synths” – tradable tokens matched with assets such as gold, BTC, and stocks.
The Latest DEXs Are Feature-Rich
Anyone who traded ERC20s on Etherdelta back in the day will recall how grating the experience was, with fatally mispriced orders never more than a misclick away. Not only do the current generation of DEXs have more protections against mispriced orders and other user errors, but they pack a ton of new features. On September 23, Loopring’s Dolomite DEX launched, enabling trading directly from noncustodial Ethereum wallets. For those who desire fiat access, there’s the option to connect your bank account or debit card to purchase crypto and also to exchange from crypto back to USD. Tools include an integrated portfolio manager and margin trading of up to 5X using Dydx’s trading protocol.
Dex.blue is another new platform that, like Dolomite, combines an easy-to-use trading interface with advanced options for professionals. Because it features WBTC, traders can gain exposure to BTC despite operating on the Ethereum blockchain, and due to its decentralized design, there are no limits on trading. Coupled with hybrid platforms like local.Bitcoin.com, which enables noncustodial P2P exchange of bitcoin cash using multisig, traders tired of CEXs have never had more options.