As a prominent figure in the crypto world former CEO of Twitter and acting CEO of Square (SQ) Jack Dorsey became increasingly vocal in defense of true decentralization, blaming many cryptocurrencies including Ethereum is hidden corporate and VC vested interests behind them, more and more market participants keep raising their awareness towards DEX. DEX (Decentralized Exchange) uses smart contracts to carry out trades. Such exchanges do not have an intermediary (third party, or broker, concerned). They function as peer-to-peer (P2P) exchanges. Assets are never held (now we are talking only about an exchange), and transactions (this is not only the purchase itself but also a request to buy or cancel an order, etc.) are made on the basis of smart contracts and are recorded in the blockchain.

DEX examples: Uniswap. Pancakeswap. SushiSwap, etc. (more below in the summarizing table). What has made decentralized finance more attractive to institutions is the emergence of new L-1 protocols with better rates for stablecoins and Ethereum-to-Bitcoin, ETH/BTC, pairs. More institutions are using ETH to borrow and lend across various decentralized applications, as per a Q3 report from digital assets firm Genesis. Remarkably, the value on large decentralized exchanges like Uniswap and SushiSwap grew 5X compared to the last year. As Chainalysis points out in its report, the growth of DEXs “coincides with the explosive growth of the DeFi category in general.”

Source: Chainanalysis

To better understand how they operate, let’s compare a DEX to a centralized exchange (CEX).

Financial exchanges are where users buy and sell investment instruments (shares, bonds, coins, etc.). Traditionally, the CEX takes orders from buyers and sellers and takes custody of their assets. DEXs do the same thing but without the custodial aspect and they can offer more in the way of security and anonymity. A user can simply interact with a smart contract directly from their crypto wallet.

Some DEXs have pools of currencies to trade or swap, whilst other DEXs use order books with Maker (bids) and Taker (offers) orders. Maker orders provide liquidity because they are not immediately matched on the order book, whereas a Taker order is instantly matched with an order already on the books. Thus, fees for bids are lower than fees for offers (or asks, or they can even be zero).

Source: Dune Analytics

The DeFi sector is offering a wide range of technological innovations to serve the financial market. Multinational corporations are even trying to test DeFi technology. As CryptoPotato reported, the IGN is planning to launch a DeFi lending protocol using the Authority of the Financial Market (AFM) “sandbox”.

Thus, DEX aggregator 1inch Network recently reported that the user base of the protocol on the Ethereum network exceeded 1 million users. DEX Uniswap, in its turn, has introduced several new features as part of the Auto Router v2 update aimed at improving pricing and optimizing swaps:

▫️Automatic search for the best swap price by routing transactions in v2 and v3 versions of the protocol;

▫️ support for L2 solutions;

▫️display of gas prices in real time;

▫️Automatic calculation of slippage when executing an order;

▫️new tools for developers.

DEX-aggregator 1Inch also introduced the second version of the protocol for operations with limit orders – 1Inch Limit Order Protocol v2. The new version allows for a “gas-free” exchange of tokens for ETH. Based on the update, the users who do not hold Ethereum on the balance sheet can interact with the aggregator. Uniswap. which is built upon the Ethereum blockchain. has the largest trading volume of any DEX. It deployed its V3 to the Ethereum mainnet on May 5th 2021.

Market Structure

Source: Dune Analytics

Trading volumes have been also on the rise:

Source: Chainanalysis

On a monthly basis growth has been even more spectacular:

Source: Dune Analytics

A decentralized exchange can still have centralized components. whereby some control of the exchange is still in the hands of a central authority. A notable example is IDEX blocking New York State users from placing orders on the platform.

Here is the table summarizing the main metrics of DEX major players:

SymbolPrice USDCurrent MarketCapReal Volume 24Hr. USDPercentage Change 30days USDPercentage Change Ytd USDAll Time High USDMax Supply
1INCH2.529106676905937488884-33.070121.2337.8451500000000
UNI15.622981742700269675933-25.483229.20444.972N/A
BAL18.2161264892129543855-10.19230.24374.892100000000
CAKE12.021301659541738531776-19.6311712.41744.014N/A
RAY7.4755875518126873750-24.384104.24416.842555000000
CRV5.093222517692536727487920.282723.79151.9903303030299
SUSHI5.995762456396167358633-27.01179.79623.350250,000,000
KNC1.376N/A9191144-17.29472.3125.705N/A
SRM3.74149801683937174591-35.065229.91913.56010000000000
ZRX0.84271365193510914802-22.059123.9572.5031000000000
DYDX8.43255259963167470031-40.295-33.74427.6271000000000
RUNE7.4521932538226.20842583974-27.742478.61920.918500000000
DODO0.8989912060811105538-33.336337.6938.8091000000000

Source: Messari.io