This article will discuss the five best decentralized exchanges worth diving into, what makes a decentralized exchange, some of their benefits, and how to buy cryptocurrency on one. With that said, let’s get straight into it.
Top 5 DEX: dYdX
Among the numerous features offered by the dYdX exchange, its best arguably has to be the perpetuals and margin trading, which are its primary aspects. Here, providing with margin trading that has up to 20 times the leverage while including dozens of cryptocurrencies to select for perpetuals. There might not exist a way that is easier for users to start trading perpetuals than simply linking their wallets to the dYdX exchange.
This easy start is because no identity verification is involved, unlike its centralized counterparts. Also, now that it has moved its transactions to the Layer 2 solution that StarkWare offers, there are no gas fees for nearly every transaction executed on the platform. This exempt fee includes swapping assets and purchasing or selling perpetuals.
Top 5 DEX: Uniswap
Uniswap happens to be one of the biggest decentralized cryptocurrency exchanges out there. It is popular, in large part due to its design. Also, its app is user-friendly so that newcomers can learn everything in minutes. Connecting wallets is a lot easier, and the same is valid for swapping assets or depositing cryptocurrencies in liquidity pools for earning incentives. Moreover, because of its size, there is another vital benefit on offer here, which is ample liquidity. And, unlike other exchanges, there are no lengthy sign-up processes involved.
In other words, all one has to do is connect their wallets, and they are ready to go. Still, what could be improved would be the inclusion of fiat currencies and their gas fees, which, albeit less often, can still spring up if Ethereum is congested.
Top 5 DEX: Kine Protocol
Currently ranked third on Coinmarketcap’s list of the top DEXs, Kine Protocol offers quite a good trading experience in every aspect, whether it is capital efficiency, liquidity, costs, or speed. The primary beneficiaries here are the derivatives traders, who can gain a lot from its liquidity model, which is peer-to-peer, and its hybrid architectural design. Hence, the exchange has all to do with trading derivatives in a simple yet fully secure manner, with lower costs and higher leverage.
Furthermore, its liquidity model guarantees low slippage and maximum liquidity and enables traders to close or open derivatives positions under reliable price feeds, eliminating the necessity for active market-making. Then there is its copy trading feature, which also serves as an educational tool for investors to follow, examine, and learn better trading strategies.
Top 5 DEX: PancakeSwap
Built on top of the Binance Smart Chain, PancakeSwap is a popular decentralized exchange that comes with a slew of benefits. First and foremost, the exchange provides higher yield opportunities, and its security is superior to that of other yield farming platforms, as several security firms are behind the auditing of PancakeSwap. The exchange also enables its users to purchase project tokens at earlier stages of development or before their public release, bringing in some excitement for investors looking to jump in on projects that might offer higher returns. Then there is its auto-compounding feature, which enables users to automatically re-stake their tokens to earn the best APY.
Top 5 DEX: 1Inch
The 1Inch exchange, thanks to its advanced features and tools, has set itself apart within the DEX space. These features, coupled with 1Inch never experiencing a security breach, have resulted in it becoming one of the leading exchange aggregators out there. The most notable of those features is comparing prices or rates across various exchanges to seek the best deals possible concerning any swap users want to execute. Not to mention the sheer variety of wallets and blockchains on offer here, which can be a big perk for numerous users. Also, no fees are charged for withdrawals or deposits.
Comparison Table of Top 5 DEX
|Name||Supported Fiat Currencies||Transaction Fees||Deposit Methods||Total number of Cryptocurrencies||Links|
|Uniswap||None||0.01%-1%||Crypto||850+||Home | Uniswap Protocol|
|Kine Protocol||None||0.1%-0.8%||Crypto||15+||KINE Exchange|
|PancakeSwap||None||0.25%||Crypto||600+||Home | PancakeSwap – $3.440|
|1Inch||None||0%||Crypto||400+||1inch Network | Leading high capital efficient DeFi protocols|
What are Decentralized Exchanges?
Decentralized exchanges, or DEXs for short, are peer-to-peer marketplaces wherein transactions can occur directly between cryptocurrency traders. They are responsible for providing for one of cryptocurrencies’ core aims, which is catering to financial transactions that are not officiated by payment processors, brokers, banks, or any other intermediaries. The most popular of them, such as Uniswap and Sushiswap, use the Ethereum blockchain and constitute an increasing number of DeFi (decentralized finance) tools, which can make a wide variety of financial services accessible straight from a compatible cryptocurrency wallet.
Benefits of DEX
One main benefit that comes with decentralized exchanges is their wide variety. Decentralized exchanges provide a nearly limitless range of cryptocurrencies, from the most popular to the strange and completely random. This coverage is because anybody can mint an Ethereum-based token and generate a liquidity pool catering to that token. Hence, one can easily find many projects, including both the unvetted and the vetted. If users are interested in looking for a good token in its earlier stages, DeFi is the way to go.
Another advantage is that, theoretically, they are less likely to get hacked since this exchange can store every fund within a DEX trade in the traders’ wallets. And, because no personal data is collected using DEXs, anonymity is supported. Then there is the utility that DEX can provide to the developing world. Fast transactions, peer-to-peer lending, and anonymity have made decentralized exchanges more popular in economies where the government may not support a proper banking infrastructure. This popularity is because anyone who has a mobile phone and a Wi-Fi connection can trade through decentralized exchanges.
How to Buy Cryptocurrencies on Decentralized Exchanges?
There are many ways to buy or trade cryptocurrencies on any decentralized exchange, but for this guide, we will use the dYdX exchange.
1. Getting a Wallet
If you are a complete newcomer, the first thing you have to do is get a wallet and buy some ETH. This purchase is because you will need ETH for gas fees. Go to the MetaMask website to get the wallet extension. Then, go to any popular cryptocurrency exchange like Binance that supports fiat currencies to get some ETH and USDC.
2. Connecting your Wallet
After the first step, you must set up an account by connecting your Ethereum-compatible wallet to dYdX. Go to the dYdX homepage and click on the “Trade” button in the top right-hand corner. This button will then open a portfolio tab on your browser. Click the “Connect your wallet” button and select the wallet that contains the funds you’d like to use. Make sure your wallet has enough USDC and ETH to cover the gas fees for the initial deposit.
Once you have connected your wallet, to start trading on dYdX, you must verify your ownership of the linked wallet. Click on the “Send Requests” button, and then dYdX will send you two identical signature requests. After that, you will receive a notification in your linked wallet requesting that you sign the message from dYdX. In your MetaMask wallet, click the sign button twice to verify your ownership and enable trading. Once you do that, you will find yourself on the portfolio page.
4. Depositing Funds
Next, you’ll need to deposit some funds on the network. Click on the “Deposit” button, and then the website will direct you to a tab where you can enter the amount of USDC you want to deposit. The first time you do this, you must enable USDC, which will incur a gas fee. You’ll only have to pay this enabling fee once when setting up your account. Following that, you’ll need to confirm your deposit, which will also incur a gas fee, but once that is done, your trades will not require additional gas. After that, you can instantly start trading on the platform with the funds you have just deposited.
How do Decentralized Exchanges Make Money?
It usually boils down to one way. This route includes charging fees on every transaction that is conducted on the network. Most of the time, they typically have their native tokens, which they use in governance or to power their network.
Do you Pay Taxes on a Decentralized Exchange?
No, you don't precisely pay taxes. Instead, there is something known as “gas fees” or “transaction fees.” These are deducted from every transaction conducted on the network.
Are Decentralized Exchanges Safe?
Safety depends on the exchange. Users tend to be wary of newer exchanges until they establish a reputable position. As for the security itself, it is only as good as the code underlying it. So, there are proper security firms that check if there is anything wrong with the code. If they find nothing that can be exploited, they usually issue a certificate dictating their stance on the network's security.