The start of the year 2020 may have not been so good for many, with the novel Coronavirus and social distancing grinding economies and businesses to a halt. Yet, for decentralized exchanges, the current year has been nothing but a booming success.
DEXs, or decentralized exchanges, have been around for some years now. They have their share of users, but these exchanges have always lagged when it comes to centralized ones. The main reason being they slow speed. Relying heavily on a block chain network, they can achieve a few thousand trades per second (TPS), whereas many centralized exchanges go into millions of TPS.
Crypto exchanges have always been an irony. Built specifically for trading crypto assets, these platforms are mostly centralized in nature. A truer form of a distributed network, decentralized exchanges are exactly what they sound like. The exchanges are built using blockchain itself. Instead of traditional order books, the price of assets is determined by how much of the share is available as liquidity.
A mere fraction of their cousins, these exchanges have gained immense traction in 2020 and the two dozen DEXs are witnessing a combined trading volume above USD 400 million. Extremely confident, decentralized exchanges are starting to flex their muscles and are trying to convince traders to join the revolution, experts have a different take on the scenario.
The current market leader of DEXs is Ethereum based. With the ETH 2.0 on the horizon, the maximum the network will be able to achieve is 10 thousand transactions per second. This is for the whole network, where a DEX will be a small part. DEXs still have a lot to achieve in speed yet.
Apart from the speed, a few basic issues have plagued DEXs, such as front running. The open nature of blockchain has allowed people to develop bots that place bids on DEX just before the block inclusion that are in favor of the owner. Originally meant for arbitrage where traders can claim a dispute, this can help people in market moves as the block created means that the transaction is locked forever in the network. The current technology, although very secure, limits the decentralized exchanges. Perhaps using traditional order books in DEXs can lead to a faster trading solution. A hybrid crypto exchange may be the only way forward, bringing the best of both worlds: speed and security.
I’m a Digital Marketing Manager by degree. I am passionate about doing research on latest trends in cryptocurrency market. When I’m not on web, you can find me surfing social media. I create blogs on latest news, updates and reviews about cryptocurrency market. Stay tuned for more updates.