How to Build a Decentralized Cryptocurrency Exchange

October 15, 20211:12 am

Generally, the order book DEXs ensure on-chain storage of information about open orders and put the user’s funds in their wallets only. Such exchanges could help traders in using the funds borrowed from lenders with improved potential for trade. On the contrary, off-chain order books store the order books off the blockchain. These exchanges facilitate trades on blockchain by reducing costs and improving speeds.

what exactly Is a decentralized cryptocurrency exchange

In the case of cryptocurrencies, which are often stored in digital wallets, an individual can lose hundreds or thousands of dollars in digital currency holdings simply by forgetting the key to a wallet. An exchange will not allow this to happen, as it safeguards the holdings in place of the individual investor. One of the conceits of cryptocurrencies is that anyone can mine them using a computer with an Internet connection. However, mining popular cryptocurrencies require considerable energy, sometimes as much energy as entire countries consume. The expensive energy costs and the unpredictability of mining have concentrated mining among large firms whose revenues run into billions of dollars. For example, only 98 (2%) of the 4,882 Bitcoin blocks opened from Dec. 29, 2022, to Jan. 29, 2023, were opened by unknown addresses—the other 98% were opened by mining pools.

KYC and decentralized exchanges

There may be multiple users on one side, but the backend is controlled by a single organization. We have developed around 50+ blockchain projects and helped companies to raise funds. DEXs still aren’t as straightforward as CEXs, but they are a significant innovation in the crypto space. People who prioritize core crypto values like decentralization and anonymity most appreciate what DEXs are trying to accomplish.

what exactly Is a decentralized cryptocurrency exchange

This type of exchange tends to have higher trade volumes and liquidity and a greater number of trading pairs. Crypto exchanges are platforms where users can trade digital currencies for other assets, including cryptocurrencies like Bitcoin , Ethereum , Litecoin , and regular currencies, like U.S. EToro is a multi-asset investment platform that allows users to trade a variety of assets, including 30 popular cryptocurrencies. The platform’s main highlight is its social trading features, which allows users to create a custom news feed and follow, copy and interact with their favorite traders. It’s important to mention that Public is not a full-service cryptocurrency exchange.


On a decentralized crypto exchange, liquidity is dependent on the amount of tokens locked within a liquidity pool. Each liquidity pool is made up of one trading pair, with both crypto assets being supplied by liquidity providers. To incentivize increased liquidity, providers are rewarded with tokens that are accrued from transaction fees on the trading platform. You should know that decentralized exchanges do not have a sign-up process and you don’t need an email address for interacting with DEXs. On the contrary, you would need wallets that support the smart contracts on the network of the exchange. Therefore, any individual with a smartphone and internet connection could make the most of the financial services presented by decentralized exchanges.

Unlike with other non-dedicated cryptocurrency exchanges, lets you keep custody of your coins. CoW stands for Coincidence of Wants, and it’s the key to low-cost swaps on CoW Swap. This clever protocol matches swaps without using liquidity pools whenever possible. If there isn’t anyone else who wants to swap the same tokens, then CoW Swap becomes a DEX aggregator, helping you find the best deal elsewhere. CoW Swap also supports limit orders, so you can just wait for the right price. Uniswap has a massive user base, with about 5 million users to date and a huge selection of tokens.

At a decentralized crypto exchange, you connect your cryptocurrency wallet to software running on the DEX website. If you wish to purchase or swap crypto assets, you simply specify what you are looking for. The decentralized exchange app tells you the price, and if you approve, you okay the transaction. You never log in, provide a name or email address, or create an account. DEX enthusiasts argue that centralized exchanges like Coinbase, Binance, and Kriptomat bring many of the features of traditional banks into the crypto world.

Past performance of the digital asset markets or markets in their derivative instruments is not a viable indication of future performance with actual results possibly differing materially from those stated herein. We will not be responsible for any losses incurred by a client as a result of decisions made based on any information provided. Decentralized crypto exchanges are becoming increasingly popular but not all have healthy liquidity conditions.

  • After setting up a crypto wallet, users must deposit crypto funds into this private account.
  • Decentralized exchanges don’t have withdrawal fees, withdrawal limits, or pesky trading rules that benefit the exchange rather than the traders.
  • Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
  • Other major tasks are protecting users from price impact and reducing the probability of failed transactions.

Customers of decentralized crypto exchanges, on the other hand, have access to a restricted number of order types and do not have access to margin trading . Perhaps when more advanced decentralized systems enter the market, they will provide more functionalities. In order to become a user on a decentralized exchange, all an individual must do is connect a cryptocurrency wallet to the exchange. This makes decentralized exchanges much more anonymous than their traditional counterparts — which raises questions around KYC and AML regulations, as mentioned above. Without intermediaries, decentralized exchanges work under a non-custodial model.

You can do this with a CEX, and some DEXes work with an “onramp” tool that lets you buy crypto. Additionally, many DEXes only support cryptos from a single blockchain, meaning you might not be able to directly trade Bitcoin for Ethereum like you can with a CEX. In order to offer competitive spreads, CEX place liquidity requirements for market makers on listed cryptocurrencies and tokens. CEX have sophisticated, high-speed matching engines that match users’ orders in milliseconds, facilitating a smooth experience, and minimising price swings during volatile market periods.

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