The DEX Top 10: Crypto Briefing’s Decentralized Exchange Picks

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Every time an exchange is hacked, it seems a DEX springs up. Although these decentralized exchanges have advantages, it can be difficult to find the best one. Here are our top 10 recommendations.

Weighing the Pros and Cons of DEXes

DEXes seek to execute the same scale as centralized alternatives without a central authority ⁠—  or engine ⁠— to execute trades. Like many attempted blockchain solutions, this task is also incredibly challenging. By trading away speed, pair variety, and sleek interfaces, DEXes offer much more in the way of security and anonymity.

For those looking into cryptocurrency, especially from the traditional finance sector, trading well-established cryptocurrencies like Bitcoin or Ether still appears precarious. With only a few exceptions, the threat of hacks is a major deterrent.

Malicious agents have managed to tap into various centralized exchanges and extract critical user information to make off with funds. Additionally, losses have often surpassed multi-million dollar figures. More importantly, this lack of security has tarnished the image of the crypto space as a potential competitor to conventional exchanges all over the world.

Various projects have since sprung up to meet this demand by applying different tenets of decentralization. In the following list, we’ll outline the nuances between each of these differences. 

A few common threads will reappear, including whether DEXes execute trades on-chain or off-chain, how orders are matched, and how these platforms approach “know-your-customer” regulations. Such regulations have also been a major sticking point for many in the crypto community.

One of the more interesting stories of 2019 was the fall of EtherDelta, formerly the world’s top DEX. Much of its popularity came from the fact that the exchange did not require any KYC policies on the platform. Anyone in any part of the world could simply log in and begin trading immediately.

Authorities drew precedent from the “DAO Report” in 2017 and indicated that the DEX had failed to file as a securities broker with the SEC. The Commission explained that if the platform was catering to American citizens, it must also abide by American laws, including KYC mandates.

In hindsight, the issue appears easily avoidable. But this development is just one example of the common obstacles facing DEXes and crypto markets.

After reviewing these top DEXes, the advantages and disadvantages of decentralization will become more and more clear. As for the metrics under consideration, we have included liquidity, KYC standards, trade volume, trading fees, supported tokens, as well as the technical details of how each platform approaches decentralization. 

As a final note, this list is in no particular order. Rather, it lays out a variety of different approaches to DEXes in order to get a better grip on the landscape as a whole. 

The Top 10 Decentralized Exchanges (DEXes)

1. 0x Protocol and Relayers

The 0x protocol is a general-purpose technology built on top of Ethereum. All of these tokens are ERC-20 or trade using WETH (“wrapped ETH”). Projects from the world of gaming like Gods Unchained, as well as those in the DEX space, all use 0x to build their products. In fact, there are six notable DEXes built on 0x. To understand how these exchanges work, however, one must first understand the architecture of the Ox platform. 

0x offers centralized databases, called Relayers, to help improve Ethereum’s scaling issues. Relayers mediate activity between users before interacting with Ethereum’s blockchain. This could be matching orders between traders, for instance. 

Some DEXes that are already operational on 0x include Radar Relay, UDEX, LedgerDEX, DDEX, Paradex, ERC DEX, and a handful of others. These Relayers typically operate as off-chain matching engines to pair orders. Once an order is executed, the transfer of digital assets occurs on-chain. 

It should also be noted that each of the above-mentioned Relayers can connect with one another to improve the chances of matching an order. 

Consider the following example: Alice places an order to buy 0.5 ETH on any one of 0x protocol’s DEX Relayers. This Relayer broadcasts the order to all other Relayers until it finds a match. Once matched with a seller, the Relayer executes the exchange via a smart contract. 

Radar Relay, the most prominent DEX on 0x, reports the most activity, having executed approximately 155,000 total trades with a volume of roughly $283 million since launching in 2017. 

1/ RADAR TURNS TWO!

Things move fast in a startup. In crypto. With multiple products.

These last two years have flown by and I’d like to slow down and thank our community. pic.twitter.com/HgrLG1JZZu

— Alan Curtis (@AlanJamesCurtis) August 27, 2019

It is limited to trading ERC-20 tokens and does not have any KYC requirements (despite being founded in the United States) and there are no fees for trading on Radar Relay. 

2. Bisq

Bisq is another prominent decentralized Bitcoin exchange. It allows users to exchange Bitcoin for national currencies without having to divulge any identifying information. It is an open-source desktop application built and sustained by developers all over the world. 

It leverages Tor routing, local computing, and personal wallets to ensure that no single component of the software is centralized. It should be noted, however, that trading on Bisq is significantly slower due to these characteristics. Unlike 0x Relayers, no part of a trade is centralized ⁠— including matching buyers and sellers. 

Instead, Bitcoin sellers must manually search for orders in their preferred national currency and non-crypto payment method.

This is not "decentralize all the things" because that's what the cool kids are doing.

This is definitely not your typical exchange shitcoin.

This is true censorship resistance—free software with a sustainable revenue model that doesn't care about haters (in any form).

— Bisq (@bisq_network) November 20, 2019

The convenience of placing an order also depends on which traditional payments platform users intend to use. Some Bitcoin orders are only available if users also have a Zelle account, for example. Other options include bank transfers, but this option may raise suspicions for certain financial institutions.

Regarding security, all funds and deposits made before executing a trade are held in a 2-of-2 multi-signature escrow. The security deposit needed to begin trading and prevent fraudulent behavior is 2% of the total trade. This is the closest equivalent to a trading fee in this network. 

CoinMarketCap indicates approximately $119,000 traded in Monero on the platform over the last 24 hours, roughly $15,000 traded in Bitcoin and less than $5,000 Ether traded over the same period. 

While the liquidity is low and the speed is slower than most, Bisq prides itself on having total decentralization.

3. Airswap Protocol

Another DEX from the Ethereum family is called Airswap Protocol. Airswap does not require any identifying information for traders to begin trading, nor do they charge fees. 

Indeed there are many similarities between Airswap and 0x, but examining their differences will make clear the wide variety of Ethereum-based approaches to DEXes.

Like 0x, Airswap balances certain off-chain activity for speed with other on-chain activity for security. Instead of Relayers, off-chain activity in Airswap is executed via a lightweight peer discovery engine. This engine also ensures that there is real intent to buy and sell specific assets. Each party has expressly sought out the counterparty to trade with, thus order cancellations are rare on Airswap. 

Once a trading partner is established, the two parties then negotiate the price for the digital asset in question. If a price cannot be agreed upon, the parties must then query an oracle. The Airswap whitepaper explains that “the Oracle provides this pricing information to help both the Maker and the Taker make more educated pricing decisions and to smooth the process of trade negotiation.”

To prevent dishonest activity, each trade asks users to lock up an amount of Airswap tokens for a period. Only ERC-20 based tokens are eligible for trade on this platform (with the inclusion of Tether), and liquidity, at press time, is just over $12,000. It is currently backed by blockchain firm ConsenSys.

4. IDEX

IDEX is one of the most popular DEXes on this list. At press time, it boasted nearly 50 Bitcoin in liquidity and just under 400 different token pairs. 

Users of the exchange manage their funds through the platform’s Ethereum-based smart contract, which is accessed via private key. There are four ways to open a wallet at IDEX: MetaMask, a Keystore file, manually entering private keys, or through a Ledger Nano S. 

Once connected, users need only move funds over to the exchange using any of the four wallets to begin trading.

Comparatively, IDEX offers the most complete trading experience of all DEXes listed. Once on-site, users can view trading pairs and the status of various order books, and the interface gives users the ability to set up market/limit orders. Like centralized exchanges, the order book is also updated in real-time, which means that matching buyers with sellers is relatively efficient. 

IDEX is, however, more centralized than other DEXes, as many of the operations are controlled by a central authority (with the exception of how funds are settled). Users are still at the whim of the platform to ensure orders are executed. But as compensation, they enjoy a smoother user design and higher liquidity. This model, however, is still far more secure than any centralized exchange.

They also began implementing stricter KYC policies in August 2019. This, coupled with the quasi-centralization of the platform, has been a slight disadvantage for some in the crypto sphere. Market makers must pay a 0.1% fee on any trades, while market takers pay 0.2% plus gas fees to execute the trade.

1/ There is a lot of excitement about different “rollup” designs as a solution to ETH scaling. We wanted to share some perspective on how our new solution, Optimized Optimistic (O2) Rollup, and the @plasma_group 's Optimistic Rollup compare to each other. https://t.co/8XgP6IDy1v

— Alex Wearn (@AlexWearn) November 6, 2019

The exchange’s 2.0 launch in Dec. 2019 leverages some cutting edge Ethereum technology to improve scalability, including Optimized Optimistic (O2) Rollups. The use of native technology to execute higher efficiency makes IDEX a project worth watching in 2020. 

5. Bancor

Bancor’s exchange model is highly unique in that a second party is not necessary to execute trades. Instead, users can exchange their ERC-20 token for Bancor’s native “Smart” Bancor Network Token. BNT holders can then exchange these for other ERC-20 tokens.  

Any kind of ERC-20 token can be stored on the Bancor protocol through a smart contract. This smart contract operates effectively as a reserve for the ERC-token it is holding. Because BNT is also Ethereum-compliant, its value is backed by every other ERC-20 token held in various other smart contracts. The value of this token is automatically adjusted in relation to these other tokens. Bancor’s FAQ reads: 

“In order to know what amount to issue to a buyer or withdraw for a seller, a Smart Token continuously recalculates its price vis-á-vis each of its connected tokens, in relation to the supply of and demand for the Smart Token.”

The end goal is to improve liquidity for small-cap tokens that rarely find adequate markets on traditional exchanges. 

It also allows direct exchanges between two different tokens, like an Atomic Swap, but with an extra step. As an example, imagine that a user is looking to exchange Tron with XRP. On Bancor’s web application, users can select these two coins and connect the trade to a wallet that holds TRX. 

The Bancor protocol then scales various smart contracts in search of one that holds TRX. After converting the TRX to BNT, this BNT is then sold to another smart contract that holds XRP. Once completed, users receive the equivalent amount in XRP. 

In September, we laid out Bancor’s proposed 6–12 month roadmap designed to create more liquidity, more developers building on Bancor & more community governance by $BNT holders. Learn more: https://t.co/JZj3t4Y28I pic.twitter.com/fIbhDaBHT3

— Bancor (@Bancor) December 2, 2019

Additionally, the scope of the Bancor project extends beyond just its exchange capabilities. BNT holders also enjoy governance input. Additionally, Bancor offers a grants program for developers and has prospects to build out oracles for its BancorX cross-chain bridge. 

6. Kyber Network

The Kyber protocol is a stack of smart contracts that operate on top of any blockchain. Unlike many of the other exchanges listed, Kyber is not an exchange per se and approaches settling various tokens from a wholly different angle.

From this diagram, one can begin to understand how Takers are able to trade tokens via the various network actors. Registered Reserves, for instance, are liquidity providers that, once approved, can list their token pairs. Once listed, these token pairs become available to takers. It is not uncommon that the same token pair is offered by multiple Reserves. In this case, Takers are quoted on the best rate for their trade. 

It should also be noted that Takers can be any number of entities ⁠— including a specific wallet address, a DEX, a DAO, or a dApp. 

Maintainers are those with special access to grant permission to Reserves applicants. They also define the parameters for the Kyber smart contracts and make clear how Reserves can comply within a given network before joining. 

Here is a clear example of how a trade could be executed in Kyber. The Taker is looking to trade one ETH for Brave’s Basic Attention Token, and then queries the various Reserves that offer this trade in order to find the best price. The Taker eventually settles on 820 BAT.

This entire exchange happens on-chain but is only available to blockchains that have smart contract capabilities. 

Kyber also offers a native token called Kyber Network Crystal. Not only does this token act as a barrier against wash trading, but Kyber actors also need the token to execute operations within the protocol. KNC holders also enjoy governance rights at the protocol level as well as the opportunity to participate in treasury funds for further development. 

7. Uniswap

Uniswap Exchange Protocol, for all its promise, is also one of the hardest DEX solutions to understand. 

This is because it reverses what we know about market makers, order books, and price points. In an attempt to simplify how this works, Scalar Capital, an investment group focused on cryptocurrencies, has provided one of the most straightforward explanations.

On traditional exchanges, order books are organized via various price points and the different demands at each price point. One order may see a buyer purchase 100 BAT for 20 USD Coin, whereas another seller may sell 200 BAT for 32 USDC. Assuming that there are hundreds of similar trades like this happening on an exchange, the figure that falls between the highest and the lowest bid is defined as the price of BAT during that trading period.  

In Uniswap, all of these orders are mixed together and the resulting price is defined by an “automated market maker” (AMM). All the liquidity for this trading pair is then combined and placed in two categories. 

For example, it may end up that a market has 300,000 BAT and 55,000 USDC. Uniswap will then take these two quantities and multiply them together to get a product of 165 billion.

No matter how many trades that are made within this trading pair, the Uniswap protocol, which uses an AMM called Constant Product Market Maker, will always adjust to ensure that the product stays at 165 billion. Assuming that BAT equals “A,” USDC equals “B,” and the product equals “K,” whenever a user buys BAT they add USDC to the liquidity pool in order to maintain “K.”

The relationship between “A” and “B” is thus asymptotically related, meaning that as traders take larger positions in “A,” the returns in “B” diminish.

In reference to the above, Scalar Capital writes:

“What’s absolutely essential to notice in this system is that the price quoted is directly dependent on the size of the order. The further one moves along the curve, the less bang they get for their buck.”

Conversely, the liquidity created from simply pooling all pairs “smooths out the depth of the order book,” according to Scalar Capital. Spreads also become much slimmer for certain trading pairs and traders needn’t constantly micromanage their positions as there are fewer variables affecting price. 

For more details on the intricacy of this exchange, interested parties should consult Scalar Capital’s Medium article on the subject as well as read through the source documentation. 

8. Binance DEX

As readers have likely already noticed, many of the current DEX platforms leverage the flexibility of the Ethereum blockchain to achieve their ends. Binance, a leading cryptocurrency exchange, has since noticed and joined the DEX movement following the launch of their native blockchain.

In an interview with the Changelly team, Binance’s CEO Changpeng Zhao said that:

“Binance DEX is a decentralized exchange developed on top of Binance Chain, with low latency, high throughput, low fees and UX similar to current centralized exchanges. Oh, and you hold your keys or funds yourself. No need to deposit your funds at an exchange.”

Once launched, the original ERC-20 Binance exchange tokens (BNB) were burned and systematically replaced with BEP-2 format tokens using the Binance Chain.

Elected validators produce blocks and manage the network. To incentivize honest maintenance, Validators charge fees for their services. But because there are far fewer nodes on the Binance Chain compared to Ethereum, Binance DEX can confirm transactions on the network within seconds.

Critics have been unimpressed with the launch as the Validator scheme only includes 11 nodes as of June 11, 2019. Compared to Ethereum, Binance Chain is still relatively centralized.

A few guys seem to be bent out of shape, take it easy. Don’t call it a DEX. Call it an exchange where users control their own funds, runs on a fast blockchain maintained by a number of nodes, plus a fast and easy UI. That’s it.

— CZ 🔶 BNB (@cz_binance) February 22, 2019

But liquidity on Binance DEX is also higher than most other DEXes, but mostly because the model closely resembles Binance’s highly successful centralized version. CoinMarketCap reports nearly $1 million in volume and 83 different trading pairs.

9 & 10. Honorable Mentions

After reading through the various DEX implementations, readers have been exposed to the most ambitious projects in this space. Understanding these projects will prepare any crypto enthusiast for the inevitable arrival of even more DEXes.

As seen above, the Binance DEX offers little in the way of novelty, but is still enjoyed by many traders for its security features. Other blockchains like Decred, Tron, Stellar, and Waves have all launched native DEXes on their platforms too.

Waves did, however, announce that they would be handing off their DEX to a third party, according to press releases. Prior to that, users of the Wave DEX were offered to run “Matcher” nodes to help facilitate order matching, while settlements were made on-chain.

For its part, Decred’s DEX appears to leverage Atomic Swaps (a matching engine similar to the Airswap protocol) as well as a reputation system. There are no trading fees, and servers within the network can connect using a mesh network.

1/4 It’s here! The Decred #DEX spec has landed. Read the details on GitHub to learn exactly how it will enable a decentralized, inclusive and transparent future per Decred’s original vision.https://t.co/2OPf3OycN7 pic.twitter.com/mhz7pXGIcI

— Decred (DCR) (@decredproject) July 31, 2019

DEXes typically combine a matching engine with on-chain settlement. Sometimes there are nodes that earn fees for connecting buyers and sellers, sometimes there is a native token. With few exceptions, most platforms demand some form of KYC portal.

Reduced to these characteristics, though, projects like Kyber Network, Uniswap, Bancor, and Airswap all appear to be in a league of their own. Still, they each have their respective hurdle to overcome. Whether it be achieving scale, generating liquidity, or improving upon user design, these technologies are the nuts and bolts of the DeFi vision.

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