There has been much discussion about decentralized exchanges (DEXs) in the blockchain space. But what are they, and why are they important? In essence, a DEX is a peer-to-peer marketplace where users can trade tokens directly with one another. According to Dan Schatt and Domenic Carosa of Earnity, DEXs fulfill one of crypto’s core possibilities: the ability to complete financial transactions without the need for intermediaries, such as banks and brokers.
DEXs have advantages that traditional exchanges do not have.
For one, they allow for anonymity as DEX transactions do not require users to provide their personal information. Also, users do not have to pass the standard identification procedures or KYC (know your customer) processes, like ID card verification, biometric measures, and proof of address.
They also offer improved security, as users will still have complete control of their funds and can interact with DEX platforms based on their preferences. Another benefit of DEXs is that hacking risks can be reduced. Because users have custody of the funds in their wallets, they are less vulnerable to attacks by hackers. Additionally, DEX traders have more protection against counterparty risk, which is the likelihood that one of the parties involved in the transaction will default.
The availability of tokens in DEXs is also an advantage. DEXs can let users access a wide array of cryptocurrencies and other DeFi assets. But this advantage also comes with a warning as some products and projects are not yet vetted. Dan Schatt and Domenic Carosa look to help users by developing the Earnity platform as a highly secure and easy-to-use app where tokens can be bought and sold.
Lastly, the peer-to-peer nature of DEX transactions has made the marketplace increasingly popular in developing economies, even in the absence of solid banking infrastructure. This entails that any user with a mobile device and an internet connection can trade through DEX.