The unending dispute between experts on two sides of the argument is splitting further down the line. Right now, veterans of the blockchain industry are figuring out the “decentralized exchanges vs centralized exchanges” dispute. Again, both sides seem to be making valid statements and point toward apparent advantages.
What are decentralized exchanges?
The ongoing transformation of our beloved industry is more than just noticeable. Each year brings new ideas and concepts to the forefront while the market tries to separate the good from bad. One trend has remained strong despite all the commotion in the ecosystem: people cannot get enough of decentralization seeking new solutions that would make finances easier to comprehend, more convenient to manage, and more private than ever.
At the very tip of the spearhead, DEX trading platforms are doing everything they can to get better at beating their centralized counterparts. Already established platforms like Binance or Coinbase are still dominating with their strong focus on user experience and the ability to procure liquidity. Nevertheless, smart users of crypto have noticed some drawbacks of using these services managed and overseen by a centralized authority that may or may not have agendas.
PancakeSwap or UniSwap became popular exactly because they are using the blockchain technology as it was intended by providing a reliable service without taking your funds into custody and offering a more democratic approach to handling finances. Some experts argue that user-friendly decentralized exchanges may become the norm by the end of the decade when more people become better at self-custody.
A typical example of DeFi exchanges is UniSwap. It is a community-driven platform where holders of large stakes can meaningfully affect the direction of the development and even initiate some changes if other stakeholders support them. The democratic approach to governance may slow down the deployment of new features and takes longer to be effective, but it should, in the long run, provide a better environment for core audiences. The ability to actually have some control over the way finances are being managed is what often attracts investors.
In 2024 alone, the total trading volume on popular decentralized exchanges exceeded $2 trillion which is a good indication of the interest to the ecosystem from independent and institutionalized investors.
Why are DeFi crypto trading platforms so popular?
The growing interest from the representatives of TradFi and enthusiastic users of crypto toward the ecosystem is quite apparent and can be justified. While we are still figuring out the quirks of the industry and its standards, the theory claims that financial operations will become safer, faster, impossible to tamper with, and protect individual capital holders from scams and technical issues.
We are aware of many technological problems and disappointing performances of various platforms that failed to live up to the hype. However, we are still very early and improvements are made in all aspects of the cryptocurrency market with new technological advancements covering issues that were discovered previously. Remember that the current, very fragile global financial system based on fiat has been in development for over a century and, in many ways, has been already surpassed by what is possible on blockchain.
Let’s take a closer look at what makes these platforms better compared to TradFi and CEXs:
- The security is just better. The biggest weakness of any centralized entity that takes your funds into custody is that all the money is in a couple of wallets making them prime targets for skilled hackers. When a single vulnerability can cause massive losses, no amount of safety measures can prevent potential breaches. CEX platforms have lost over $1 billion to hacks and security breaches. Users were helpless. Secure decentralized exchanges in 2024 are putting extra effort in building more resilient smart contracts and ensuring that users have total control over their assets.
- Trading is less expensive. If you know how to make money on cryptocurrency exchanges and have some experience juggling different assets, you know that commissions and fees are your biggest expenses associated with trading. Popular decentralized exchanges take a much smaller cut of a deal compared to any CEX platforms. Typically, you would pay anywhere from 0.1% to 0.5% per operation on centralized services. Compare the numbers to what is offered by Uniswap where users pay 0.05% per transaction regardless of its size.
- What about privacy? Since many centralized entities have to comply with regulations, they must implement KYC procedures to operate legally and offer their services to investors typically operating with fiat currencies. However, many retail traders do not want to reveal personal information and share the details of their financial activities with official authorities and other people. Decentralization affords privacy and anonymity to all users. Uniswap and Pancakeswap settle their operations on Ethereum or BNB Smart Chain making them fully anonymous.
- The interconnected world of opportunities. The best decentralized crypto exchanges serve as the vertebrae for the whole DeFi ecosystem. Many lending and borrowing services are running on the foundation of liquidity provision much like yield farming and liquidity mining systems. The total value locked in various protocols is anywhere between $100 billion and $500 billion depending on who and how does the counting.
- Diversity is the name of the game. One of the biggest advantages of DEX platforms is the variety of digital assets available for trading. Many of Dapps allow for cross-chain asset movement meaning that even obscure tokens on small blockchains can be moved or traded on another network. Uniswap allows its users to work with over 10 thousand different tokens with over 70% not represented on CEX platforms.
These are core reasons to work with what this incredibly complicated ecosystem has to offer. However, other reasons should be mentioned too. For example, the blockchain does not care where you from and which laws you abide by. The service is accessible globally as long as you have an internet connection. Another factor is the increased security with wallets strongly protected from unauthorized access if users follow some basic safety protocols.
How to pick the best DEXs for trading?
The saturation of the market has seemingly reached its capacity with hundreds of different platforms to choose from. Making the right choice is imperative if you want to engage with the market safely while having plenty of opportunities to earn money. The challenging part is comparing a variety of metrics and features. You have to consider:
- Fees and commissions associated with making transactions;
- Security and safety measures implemented to protect your capital;
- Privacy and anonymity levels that suit your requirements and preferences;
- Reliability of the service and the public opinion;
- The diversity of available financial instruments and digital assets.
User interface, the convenience of use, and even the track record of founders have to be considered too. The sheer volume of information one must comb through makes it very difficult to make an informed decision. Newcomers often feel hopeless and just start working with the first platform that looks at least somewhat reliable.
We strongly encourage you to abstain from making rushed investment choices. It takes just several minutes to conduct a surface-level analysis of any service. Spend just an hour on researching and you will have even more information to work with. Let’s talk about some factors that you should consider.
Learn more about security measures
Whenever it comes to money, you must pay extra attention to safety measures implemented by the entity you plan to work with. Even top crypto exchanges may have minor security issues that may be overlooked depending on your risk tolerance. However, doing your due diligence is extremely important.
Here are things that a good platform should implement:
- Independent audits. The technology is never in its perfect state and must be scrutinized meticulously by people who know their stuff. Companies like Quantstamp and ConsenSys conduct audits of smart contracts, digital infrastructure, and security features.
- Incentivizing bug hunting. Some platforms reward bug hunters with tokens when they find a vulnerability in their technology. When thousands of experts are stress-testing your infrastructures and security measures, you have higher chances of finding weaknesses.
- If a project allows for independent inspections of their architecture, ensures high standards of smart contract development, and invites people to catch bugs, you will not worry that much about working with it.
Evaluate liquidity and trading volumes
Without liquidity, there is no trading. All platforms are trying their hardest to provide sufficient funds allowing funds to move quicker and transactions to happen whenever necessary. With higher liquidity, a platform can offer stable market conditions and prevent slippages while maintaining a high level of confidence in retail traders.
What can you do to check the availability of liquidity?
- Check out TVL numbers. Total Value Locked is a good indicator of whether there is enough money to allow for smooth trading experience.
- Take a closer look at volumes which often indicate how many traders engage with the platform daily and how quickly they can finalize transactions.
- Analyze liquidity pools that are often publicly accessible and act as health indicators for trading platforms.
Fees and commissions play a huge role
The profitability of your investment activities depends on the price of each operation. In general, DEXs offer better conditions and can significantly reduce cots for an average retail trader. However, fully understanding the fee structure is quite important if you want to trade efficiently and earn as much money as possible.
Here are tips to evaluate the fees:
- The price of transactions. Uniswap is one of the cheapest platforms in the market with just 0.05% fee per operation. However, you may find cheaper and more expensive options.
- How much is the gas? The price of transaction settlement depends on the underlying blockchain type. For example, Ethereum is a little bit more expensive than BNB or Polygon.
- Do you have to pay extra? Some platforms charge additional fees for withdrawals and losses in liquidity pools. Make sure to consider these costs too.
The diversity of options matters
All retail investors want to have an option to access any digital asset. The cryptocurrency market is unpredictable. Some tokens may start going up out of nowhere. If you do not have the ability to buy them, it will negatively affect your portfolio or simply leave a bitter aftertaste. The reason why Uniswap has over $15 billion in TVL (across all assets) is that it allows users to work with over 10 thousand different coins.
You can easily check the diversity of the offerings on any platform and conduct a decentralized exchange comparison by doing the following:
- Check token listings. This information is publicly available and often used by platforms to market themselves in a positive light. Search for tokes that you are interested in.
- Take a look at trading pairs. Each strategy involves using different types of assets and trading them for each other. Make sure that the platform of your choice supports these pairings.
- Read about upcoming listings. One of the advantages of working with top decentralized exchanges in 2024 is that they are much quicker to list new assets allowing you to join early adopters.
UX/UI and integration with third-party networks and services
You don’t want to spend whole evenings just trying to understand how the system works and where you must click to make a trade. It is a good idea to work with platforms that focus on developing a user-friendly interface and ensure that everything feels convenient and intuitive. Another big thing is the integration of external toolkits and services which is a rare occurrence in the DeFi ecosystem.
If a platform has an API, it will be easier to work with since many retail traders are interested in using advanced instruments like a crypto robot or modern AI trading tools. While DEX platforms are still limited in this kind of functionality, some are making the necessary changes to their infrastructures and invite third-party developers.
Remember that it is crucial to be comfortable while using trading platforms and trying to reach the coveted consistency and reliably earn money. Do not work with services that you find hard to navigate and operate efficiently.
Top DeFi exchanges in 2024: our picks
Despite the incredible variety of different platforms in the industry, you can still narrow down the list of interesting projects to a manageable number. We want to give you a couple of examples of leading DEXs that deserve your attention. Note that we do not promote any of these brands and do not encourage readers to start working with them without doing their own research first.
Here are some great places to trade crypto:
- Uniswap was mentioned several times in this article. It is the poster child of the whole industry. With over $15 billion in TVL (USDT, ETH, and BNB holdings combined) and over 10 thousand listed tokens, it is the place to go for all your trading needs. Low fees also make it an attractive choice for active retail traders seeking cheap services and useful utility in their instruments. The platform is designed to work perfectly with all ERC-20 tokens and allows for effortless and seamless implementation of any solutions on the Ethereum blockchain.
- PancakeSwap is a great choice for people who are used to the Binance family of services. PancakeSwap works on the BNB smart chain and allows for quick transactions within the ecosystem while maintaining a high level of cross-chain compatibility. At the time of writing, $CAKE can brag about its sizeable $500 million market cap and strong recovery after losing about 20% of its initial evaluation. Among many other tokens, this one seems to be gaining its sure footing with confidence.
- 1inch is an interesting service that monitors the market and looks for the best deals among other trading platforms. If you want to conduct transactions at the lowest possible price, 1inch is a great place to work. Note that waiting for the best fee is not the most optimal strategy since an opportunity might slip away while you are searching for the lowest price. However, if you are not after immediate gains, 1inch is a solid choice allowing you to trade across multiple chains.
- SushiSwap is often cited as a more flexible version of Uniswap. While the latter focuses on delivering the best experience to dedicated Ethereum enthusiasts, the former supports six different chains including BNB, Moonriver, and Arbitrum. Some users find this diversity quite refreshing and useful. Others might think that Ethereum alone is more than enough for a retail investor. $SUSHI is struggling to recover and has been trading way below its initial price for over two years. However, many experts believe that it is one of the best choices in terms of utility.
- Osmosis DEX is an excellent destination for people interested in working with the Cosmos ecosystem that offers assets like ATOM and OSMO which are quite popular among dedicated crypto enthusiasts. You can trade and swap various digital assets or focus on liquidity provision to earn coins passively. The metrics of this platform look healthy with over $150 million in TVL and a strong focus on the native Cosmos blockchain. You will need to use the Keplr wallet to interact with the ecosystem.
- dYdX builds a strong case for fully decentralized trading platforms focusing on derivatives like perpetual futures and options while providing market participants with the necessary financing. Thanks to its compelling offering, the project managed to catch the eyes of thousands of wealthy retail investors who helped it to balloon the TVL to over $500 million. At the time of writing, the native DYDX token has surpassed $1.4 billion in market cap and regularly reaches over a billion USD in daily trading volume.
- Curve was initially conceived as an Ethereum-exclusive platform. It has expanded to multiple networks and allows for effortless swapping between assets on Avalanche, Polygon, Fantom, and Ethereum. The main focus of this project is stablecoin trading requiring massive liquidity to be relevant. TVL is quite large with over $21 billion in USD, BTC, and ETH combined. The CRV token is doing just fine in the market and has over $340 million in market cap and close to a $50 million daily trading volume.
- Balancer is a multifunctional platform that provides a wide range of instruments as a place for automatic market making, effortless asset swapping, and liquidity provision platform. $BAL has utility and allows users to vote in the DAO while also giving significant trading advantages to holders. Unfortunately, the market performance of the $BAL token has been disappointing to many despite the benefits of Balancer. Right now, the coin has dipped to $147 million market cap and trading volumes rarely go over $6 million. Nevertheless, it is still a fully operational ecosystem with useful perks.
We highly encourage all our readers to test these platforms personally using small amounts of capital. It is hard to simply explain how many of them work. It is easier to get a grasp on the functionality by actually trading.
A good idea is to hold assets on a reputable centralized exchange and focus on passive strategies like GRID trading or arbitrage while you are looking for good DEXs. This approach will keep your money working. However, if you are into self-custody, splitting holdings into actively used on CEXs and traded manually using P2P and DEX services is a good idea.