Learn 
November 28, 2024 
20 min. 
Decentralized Crypto Exchange (DEX) is changing the way we trade cryptocurrency. With unique features like full control over assets, robust security, privacy, and Peer-to-Peer (P2P) transactions, a large number of investors are flocking to these exchanges. Many experts believe that decentralized exchanges will dominate the crypto industry in the future.
But you might be puzzled: what’s the best DEX exchange you should go for in 2024? Continue reading as we’re going to explain how DEX works, its features, and bring you the best decentralized exchange cryptocurrency choices. So you can pick the DEX that suits your needs. Without further ado, let’s get started.
What is a Decentralized Crypto Exchange?
A Decentralized Crypto Exchange or DEX works in the same way as a normal crypto exchange, where you can buy and sell digital assets. But there are a few key differences. First, DEX doesn’t rely on a central authority or intermediaries. This means you can buy and sell cryptocurrencies directly Peer-to-Peer (P2P).
Secondly, it uses autonomous smart contracts like Automated Market Makers (AMMs) to facilitate trade. They utilize liquidity pools, which are pre-funded pools of crypto assets with 50/50 token pairs.
Let’s take the DOGE/USDT pair to understand this. Anyone can contribute to the pool by depositing DOGE and USDT. As a result, the decentralized exchange remains functional and liquid. This lets traders effortlessly swap DOGE for USDT, or vice versa, without requiring a direct match. A small fee is generated with every trade, and part of it goes to people who contributed to liquidity.
A unique thing about AMMs is their automatic price adjustment. For instance, if most investors swap DOGE for USDT, DOGE’s price will fall, while USDT’s price will rise as supply and demand fluctuate. This constant price adjustment is algorithmic, so trades don’t get hung up.
How It Differs from Centralized Exchanges:
The main advantage of a decentralized crypto exchange is that you get full control over your crypto assets. Additionally, unlike CEXs, DEXs run on decentralized blockchains. This means that once a transaction is recorded in a block, nothing can be changed or removed. Therefore, there’s no chance of anything bad happening on the platform.
Another advantage of a DEX exchange is its high level of anonymity. DEX doesn’t ask for any personal info. All you need to have is a crypto wallet app to get started. Plus, since it’s decentralized, there’s no third party overseeing or regulating it. In addition, there’s less chance of data breaches with decentralized exchanges.
Compared to a centralized exchange, a DEX exchange offers unmatched transparency which makes it a good option for traders who want full transparency. All the trade records are made public on blockchain ledgers so anyone can verify their legitimacy. This transparency makes people trust and believe the platform since it reduces fraud and manipulation risks.
Features of Decentralized Exchanges
A decentralized crypto exchange offers many advantages over centralized exchanges, thereby making it a far superior alternative. Let’s look at a few of the primary benefits.
1. Security
A big advantage of a decentralized crypto exchange is that it’s super secure. Unlike centralized exchanges, which are susceptible to hacking, DEXs let you control and own your assets, so centralized vulnerabilities won’t exist.
Further, a DEX exchange allows you to maintain control over your private keys. This ups the security even more and lowers the risk of hackers. Usually, if you use a CEX they keep your digital asset in their own wallet as a custodian. It might seem more convenient, but there are risks, like the centralized cryptocurrency exchange failing and getting hacked.
A perfect example of this is the recent failure of the $50 billion algorithmic stablecoin TerraUSD and its twin token Luna.
2. Anonymity
Another big plus of a DEX exchange is that you don’t have to verify your identity and fill out Know Your Customer (KYC) forms, which gives you more privacy. KYC involves getting traders’ personal info, like their full name and a picture of their government ID. It’s tiring and that’s why DEXs pull in people who don’t want to be identified.
Additionally since DEXs do not censor cryptocurrencies and digital assets, they offer a wider range of options than CEXs.
3. Low Fees
As DEXs use the Peer-to-Peer model, they offer several cost-saving benefits to users. First of all, DEXs usually charge lower trading fees than centralized exchanges, which can be a big deal for people who trade a lot. Additionally, you won’t have to pay for intermediaries or custodians since there’s no central authority to deal with.
You know what’s even better? P2P transactions on DEXs settle instantly. Therefore, traders benefit from faster access to funds, resulting in better cash flow and operational efficiency.
4. Global Accessibility
A decentralized crypto exchange also promotes financial inclusion by making financial services accessible to the ones left out by traditional financial institutions. With fewer KYC requirements and lower entry barriers, DEXs open up the global crypto market to people in developing countries.
In addition to that, trading tokenized assets can help diversify portfolios and provide new investment opportunities.
Popular Decentralized Exchanges
Now that we have covered the basics of DEX let’s look at a few best decentralized crypto exchanges that you can choose from.
1. Uniswap
Uniswap reigns supreme as the top decentralized crypto exchange with an established role in the DeFi space. It was launched in 2018 when Ethereum was just starting to make a name for itself. Fast forward to today, it has released several improvements and has become the DeFi juggernaut that is influencing countless other projects and pushing the crypto sector to new heights.
Uniswap specializes in Ethereum-based (ERC-20) projects. In fact, many ERC-20 tokens that launch first choose Uniswap as their exchange listing. Plus, Uniswap utilizes an Automated Market Makers model, which allows trades to take place against a liquidity pool rather than through traditional order books.
Talking about the interface of Uniswap, it’s highly regarded for its simplicity and ease of use. Whether you’re swapping tokens on the simplified version 2 or trying out the advanced features of version 3, this platform makes it easy to interact with multiple networks.
Plus, it conveniently shows your token balance right on the screen once your connected wallet is detected. In addition, when you initiate a swap, the protocol takes the quickest route to get you the best price. Additionally, you’ll see an estimate of the swap price and network fees upfront, so you know how much it will cost.
In terms of trading fees, Uniswap is competitive with some of the best crypto exchanges like Coinbase. Uniswap incorporates a standard trading fee of 0.30% into its transaction price formula for swapping tokens.
Uniswap requires network fees for each swap, which are separate from its trading fees. Through token swaps, fees are collected directly into liquidity reserves, rewarding liquidity providers by increasing their share value.
However, Uniswap swaps can get expensive if you’re on the Ethereum network and gas prices spike at times of high network activity.
Uniswap allows users to earn DeFi yields as well. It offers staking on many cryptocurrencies with competitive APYs. Additionally, Uniswap has a robust governance model. Those holding UNI, the native token, can cast votes on key initiatives. This creates an ecosystem that is fair and inclusive for everyone.
2. PancakeSwap
PancakeSwap is another best decentralized crypto exchange you should check out. It is built on the Binance Smart Chain (BSC) that offers a convenient and cost-effective alternative to Ethereum-based platforms. Also, PancakeSwap gets the first listing for newly launched BSC tokens after presales.
Launched in 2020, PancakeSwap became a favorite among cryptocurrency investors for its low transaction fees and fast confirmations, which mitigated Ethereum’s scalability issues. According to PancakeSwap, more than 4.4 million people have traded on its DEX in the last 30 days. Isn’t it cool how popular this DEX exchange has become among crypto traders?
PancakeSwap offers users a wide range of financial products and features through a friendly, simple interface. It lets you customize everything from the language you choose to how you want to trade. Plus, it has a dark mode, which is great for late-night traders who don’t want bright screens.
A killer feature is the personalized profile setup that allows you to track transactions and show off your PancakeSwap NFT available for only 1.5 CAKE tokens. Moreover, it’s got robust documentation and an active community to assist you with any questions, so it’s super user-friendly.
PancakeSwap offers a variety of features, but two stand out: yield farming and the gamified lottery system. Further, yield farming gives you rewards for putting your crypto in liquidity pools. PancakeSwap has farms with interest rates above 10%, including “Syrup” pools for staking CAKE tokens. The best part is you have a choice of flexible staking, where you can withdraw anytime, or higher rewards with fixed staking.
The gamified lottery is equally thrilling, giving you the chance to win huge CAKE prizes. The ticket costs around $5 in CAKE, and you can pick numbers or go random. Winners get massive rewards, which makes it a fun and rewarding game. The platform also has Initial Farm Offerings (IFOs) to participate in early access to new tokens.
3. SushiSwap
SushiSwap is another outstanding decentralized crypto exchange aimed at beginners. This platform is also built on the Ethereum blockchain that lets you trade ERC-20 tokens straight from your wallet.
Being a fork version of Uniswap, SushiSwap rapidly gained traction with its innovative features. It has now expanded to multiple blockchains, including Binance Smart Chain, Polygon, and Avalanche, giving users access to a variety of assets.
One standout feature that makes SushiSwap a hit with beginners is its simple terminology and fun Japanese restaurant theme that makes decentralized trading approachable. Rather than overloading users with complicated crypto jargon, SushiSwap uses creative terms like “BentoBox” and “Kashi” to convey features in an understandable manner. This playful theming helps new users get comfortable with DeFi’s interface.
The platform also offers easy-to-follow guides that explain how to interact with its Automated Market Maker tools. This makes it easy for even crypto newbies to navigate confidently.
Another standout aspect of SushiSwap lies in its rewards system, which both entices users to participate and adds liquidity to the platform. For example, liquidity providers receive a kickback of 0.25% on trades in their pools. Plus, those who stake SUSHI, SushiSwap’s native token, get xSUSHI tokens, which they can use to gain an extra 0.05% of the platform fee.
Besides awesome rewards, SushiSwap offers decentralized finance services like yield farming, staking, and lending, making it the ultimate one-stop shop. Coupled with an intuitive interface, traders can swap tokens and explore advanced features without a hitch.
SushiSwap’s governance model also focuses on decentralization. With SUSHI, holders are able to vote on proposals, which lets the community influence the platform.
Advantages and Challenges of DEXs
A decentralized crypto exchange is leading a revolution within the cryptocurrency space and offers advantages you won’t find on centralized exchanges. But there are some drawbacks you should know about. So, let’s check these out.
Advantages
Custody
DEXs are non-custodial. This allows you to transact without having to relinquish control of your private keys. DEXs are interconnected with externally held wallets, and trades are managed by smart contracts. Centralized exchanges, on the other hand, hold your private keys, thus acting as a custodian for your funds. On top of that, DEXs rarely experience issues like freezing funds or preventing withdrawals.
Privacy
Privacy is another big reason to trade on exchange platforms. The DEX platform lets users trade anonymously, unlike centralized exchanges that require users to give them personal info and verify their identity. The users don’t have to reveal their identities when trading, so they’re protected and less likely to get scammed.
Additionally, DEX platforms often encrypt data and use other security measures to keep unauthorized parties at bay.
Censorship-proof
Unlike centralized exchanges, DEXs aren’t regulated, so they’re naturally censorship-resistant. There are a lot of centralized crypto platforms that aren’t just regulated by governments, but they’re also manipulated by markets. But that’s not the case with a decentralized crypto exchange since it relies on publicly distributed networks that can’t be controlled by one entity alone.
Furthermore, blockchain technology makes transactions immutable and impossible to manipulate.
Challenges
Liquidity Problems
On centralized exchanges, Liquidity comes from massive amounts of capital. A DEX exchange often suffers from this problem since its liquidity is mainly determined by how many people trade on its platform. Moreover, it lacks access to an easy-to-use fund that would make trading a lot easier.
Complex User Interface
DEXs can be tricky to use for people who don’t understand decentralized blockchain. There are so many steps involved in learning how to trade on DEX, making it difficult to keep track of them
The first step usually involves familiarizing yourself with external wallets so you can use DEX. Following that, you must deposit cash or cryptocurrency into your wallet. The next step is to link the wallet to the DEX interface so you can execute a trade. On the flip side, a CEX provides greater simplicity for depositing funds.
Susceptible to Scams
As a decentralized crypto exchange doesn’t have a centralized authority, it’s more susceptible to scams, like fake tokens or phishing. This means fraudsters can list fake tokens and trick people into trading or staking them. Additionally, phishing sites that mimic DEX interfaces can compromise users’ funds, so staying vigilant and being aware of security is a must.
Conclusion
As blockchain adoption grows every day, decentralized crypto exchanges are a big deal. The degree of freedom, anonymity, and robust trading features a decentralized crypto exchange has to offer is amazing. However, it’s important for you to do your research and understand the tools and platforms you use. As attractive as it may seem at first glance, understanding the fundamentals of decentralization takes a lot of experience and knowledge.
