China’s ban on crypto has caused traders to cram into decentralized exchanges. Here’s a look at what DEX is and which tokens to watch out for | Currency News | Financial and business news
The crypto market rebounded on Monday from the crisis sparked late last week by China’s outright ban on trade and mining. But it’s not the major cryptocurrencies that have seen most of the action, or even some of the recent scorching “altcoins”, but rather decentralized exchange tokens (DEX).
Decentralized exchanges do not rely on any intermediary, as a standard centralized exchange would. There are no banks or brokers, or even clearing houses involved, but rather, they offer a peer-to-peer platform where the parties involved use smart contracts to execute their trades.
These contracts are mini-programs that run on a blockchain that will run automatically once a set of conditions are met. A number of decentralized exchanges are built on the ethereum network – the largest blockchain of its kind that hosts smart contacts, decentralized financial applications, and other protocols.
They are often cheaper to use than centralized exchanges, like Binance or Coinbase, and mean that users are fully responsible for managing their wallets and private keys, which allows them to access their crypto tokens.
The three largest decentralized exchanges by volume are Uniswap, SushiSwap and the DxDy derivatives exchange.
“The decentralized exchanges Uniswap and Sushiswap have seen an increase in their use, which is likely due to China’s ban on centralized exchanges. Since DEX only requires a crypto wallet and no KYC [know your customer], it’s much easier to use and can be set up in minutes, ”Jonas Luethy, junior trader at Digital Asset Manager Global Block, said in a newsletter.
There are basically three different ways for a DEX to operate.
The first is with what’s called a chain order book which lists all buy and sell orders sorted by price. In this case, each part of the transaction is written to the blockchain. This includes not only purchases and sales, but even requests to buy or sell. So, all the information is securely stored in one place, but this process can be expensive and slower.
Off-chain order books only record the final transaction settled on the blockchain, without storing orders or any other information. It’s faster, but a little less secure than on a chain.
Finally, there are Automated Market Makers (AMMs) that use what are called liquidity pools. The pool is essentially made up of a sufficiently large reserve of tokens, or pairs of tokens.
A user will simply place the tokens they want to sell or buy into the pool and a smart contract will complete their transaction. This method makes it much easier to switch from one cryptocurrency to another than with an order book, for example.
Here are the top 3 DEX tokens to watch out for:
- Uniswap is the largest token, with a market cap of over $ 14 billion. The token jumped nearly 40% at some point on Monday. It has grown by around 360% so far this year to around $ 23.40.
- Sushi is the second largest token, with a market cap of over $ 1 billion. Its token, which rose about 270% this year to $ 10.70, rose nearly 30% earlier on Monday.
- DYDX gained up to 31% on Monday. The underlying exchange saw a massive influx of new users and, for the first time, saw higher transaction volumes than Coinbase, according to GlobalBlock. The dydx token was launched about a month ago and has already roughly doubled in value to around $ 20.00.