Cryptocurrencies are taking the world by storm as the blockchain space continues to grow by the day. Centralized exchanges have been at the heart of the transactions taking place in the burgeoning sector, making it easy for people to buy and sell various virtual currencies.
Binance and Coinbase are arguably the biggest centralized exchanges handling billions of dollars worth of transactions each day. While the exchanges act as intermediaries, they go against the true principles of blockchain: decentralization and getting rid of intermediaries to enhance transactions between people.
Understanding decentralized exchanges
Decentralized exchanges are the latest sensation sweeping the crypto world and giving centralized exchanges a run for their money. Decentralized exchanges or DEX stand out partly because they enable peer-to-peer transactions. In this case, buyers and sellers can interact with one another directly and transact business without the need for an intermediary.
DEX operate the same ways as centralized markets, whereby buyers and sellers can carry out transactions with the help of smart contracts
Below are some of the biggest decentralized exchanges shaping the cryptocurrency scene while offering unique investment opportunities?
Uniswap Crypto DEX; UNI Token
Ranked as one of the largest decentralized exchanges given the amount of volume it handles, Uniswap Crypto DEX is a pioneer and a market leader in the space. The Ethereum based DEX uses the automated market maker module and liquidity pools to make it easy for buyers and sellers to transact without an intermediary.
Whenever a transaction takes place, the Uniswap AMM algorithm determines the effective price based on the underlying supply and demand dynamics between the tokens under consideration. Liquidity in the platform is enabled by users who supply the tokens. In return, they are rewarded by the fees charged on each transaction.
Anyone looking to gain exposure to the decentralized exchange can do so through UNI, the native token that powers the network. UNI token holders can also vote on the development of the DEX and also fund liquidity mining pools. As of last year, the total value of tokens locked in the change to offer liquidity stood at over $9 billion.
Curve DEX; CRV Token
Curve is an efficient automaker market maker DEX offering a cost-effective way of trading and exchanging cryptocurrencies. It is an ideal decentralized exchange for anyone looking to trade or exchange stablecoins. The exchange is extremely efficient and comes with some of the lowest slippages in stable coin trading. While some of the lowest in the space, its trading fees are determined by the Curve Decentralized Autonomous Organization.
The exchange relies on more efficient algorithms that allow it to offer low fees and low slippage. Compared to other DEX, it is an ideal platform to avoid volatility. CRV token is the native currency on which all transaction fees are settled on the exchange
The token can be bought or earned through yield farming. For anyone looking to gain exposure into the stablecoin exchange, then CRV is a token to invest in. By staking tokens on the exchange, one gets to earn some passive income in the form of transaction fees charged on the network.
Balancer Crypto DEX; BAL Token
While sharing the same attributes to other DEXs, Balancer Crypto stands out partly because it allows people to set up liquidity pools of up to eight different tokens instead of one, as is the case with other exchanges.
The exchange relies on the constant mean market equation to automatically rebalance assets within liquidity pools. It is one of the best DEX to invest in, given that fees are not paid to the fund manager for distribution. Instead, the fees are paid directly to people who provide their tokens to enhance liquidity on the platform. The total value of tokens locked on the exchange to offer liquidity as of the end of last year stood at $3 billion.
The exchange is governed by the BAL token, which acts as a medium of exchange on the network. The more tokens one offers to enhance liquidity on the exchange, the more Balancer tokens they can earn.
The 1inch Crypto DEX; 1inch Token
It stands out as one of the best DEX as it scans the market for some of the lowest cryptocurrency prices while also reducing slippage. Last year, the exchange interacted the v2 into its protocol, enabling price swaps across more than 20 decentralized exchanges.
Cryptocurrency holders can earn 1inch tokens by offering some of their tokens to enhance liquidity on the exchange. The 1inch token also acts as a medium of exchange through which transaction charges are settled on the DEX.
PancakeSwap; Cake Token
It is the largest decentralized exchange built on top of Binance Smart Chain rather than Ethereum blockchain. In addition to enabling the trading of various virtual currencies, it is also used for staking and yield farming.
Anyone who stakes their tokens on the exchange to enhance liquidity is always entitled to receive LP tokens that they can farm to earn rewards as well. The introduction of a non-fungible tokens marketplace has all but diversified the exchange. The exchange has also expanded its footprint into prediction markets and Initial Farm Offering functionality.
The CAKE token powers the exchange. Token holders who offer liquidity earn CAKE token in return. As is the case with other tokens in the DEX space, it acts as a medium of exchange through which fees in transactions are settled. As of the end of last year, there were more than $7.7 billion in the total value of tokens locked in the network.
Final thoughts
Decentralized exchanges are growing in popularity thanks to their ability to enable peer-to-peer transactions at some of the lowest costs. In addition, they have evolved to become some of the best avenues for crypto trading as they provide easier availability of tokens. Unlike centralized exchanges that are always prone to hack attacks given their centralized nature, decentralized exchanges don’t offer custody services, therefore immune to security breaches.
