What is a Decentralized Cryptocurrency Exchange?

01/09/2023

     What is a Decentralized Cryptocurrency Exchange? After the great collapse of the centralized FTX broker, many crypto market users are considering migrating to a DEX, learn more about this concept!

What is a Decentralized Cryptocurrency Exchange?
What is a Decentralized Cryptocurrency Exchange?

What is a Decentralized Broker?

     A Decentralized Cryptocurrency Brokerage, or for the best known, a DEX, are brokerages that do not depend on a central body, as they are decentralized. In these brokerages, Fiat Money is not used, that is, money issued by governments such as: Dollar, Euro and Pound.

     The best known decentralized exchanges are those on the Ethereum network, such as Uniswap and AAVE, but there are many others on both the ethereum and Solana networks themselves, for example Raydium.

     As many people know, in 2022, the second largest brokerage on the market, FTX, went bankrupt, and with that, it took good money from many investors in the cryptocurrency market. Since then, interest in DEX has increased a lot, after all, nobody wants to lose their money for such a silly thing!

     The main objective of a DEX is to be decentralized: the users run the brokerage, unlike a traditional Exchange, where it depends exclusively on a company and is subject to state regulations. Furthermore, every decision that a decentralized exchange takes is shared with users so that they can make the best decision possible, avoiding bad decisions by central leaders.


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How does a DEX work?

     DEX is an abbreviation for Decentralized Brokerage, so whenever you see this acronym lying around, remember that. However, these brokers operate very differently from traditional brokers, the famous Exchanges.

     Decentralized Exchanges run on smart contract platforms, the most famous in the crypto market is Ethereum and today, the largest DEX is Uniswap. This exchange is built on a third layer of ETH and runs as a standalone decentralized application!

     Therefore, everything that happens on the brokerage is passed on to the users and they have voting power on the decisions that are later taken: it is a true concept of democracy.

     In decentralized cryptocurrency brokerages, it is also possible to take out loans at more affordable interest rates than in traditional banks and lend your cryptocurrencies and tokens to the platform to generate liquidity, with this, you are remunerated through these tokens that you lend.

     It's a relatively new and very interesting system on how Decentralized Finance is going. We recommend that, if you are interested in the subject, you use Uniswap (which today is the largest and safest DEX on the market). Detail: we are not being sponsored to write this article.


Is it worth using a Decentralized Broker?

     Ok, you already know what a Decentralized Brokerage is, but is it worth using a DEX? This answer is very personal for each user: if your goal is decentralization, without a doubt! There you will have more freedom and privacy to do whatever you want with your funds.

     In the case of a Centralized Broker such as Binance or Bybit, you will have less headaches, there is a phrase that says: "freedom does not come without costs", therefore, in a DEX, you will have to study a lot about the universe of decentralized finance and pay slightly higher fees to enjoy this universe. Now, when using a traditional exchange, the only concerns we have to keep in mind are: 1 - I don't have my private keys; 2 - this brokerage could go bankrupt.

     Therefore, which broker to use is very personal to each individual, what we recommend is to use Exchanges as a gateway to later enjoy the DeFi world. Study little by little and invest with little capital so that later, you can completely migrate your money to Private Wallets and Decentralized Brokerages such as Uniswap and AAVE.

We recommend: Which Exchange to Choose?


Lucas Lippe

Passionate about the digital world, from classic marketing to the fabulous world of cryptocurrencies. The idea of freedom is fascinating and bitcoin gives us that in many ways. Explaining ideas of a decentralized web on the Bitcoin Lovers website.


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