The crypto landscape is abuzz with anticipation in 2024, marking a potential turning point with, spot Bitcoin ETF approvals by the US SEC at the start of the year, the next Bitcoin halving in April, and potential approvals of spot Ethereum ETFs. These developments, coupled with growing interest in real-world asset (RWA) tokenization and web3, have significantly bolstered the position of decentralized trading exchanges in the crypto market.
Following the raging DeFi summer of 2020-21, activity in the DeFi sector started picking up towards late 2023. Since then, decentralized exchanges (DEXs) across multiple blockchain ecosystems have been enjoying unprecedented adoption and trading volumes, signaling a major shift in the financial transaction landscape towards decentralization. The surge in DEX activity is not just a passing trend; it represents a fundamental shift in trader preference and trust, underscored by a staggering increase in trading volumes compared to previous years.
DEX Trading Volumes and Breakdown of Market Share | Source: TheBlock
At the time of writing, the total value locked (TVL) in the DeFi market has crossed the key $100 billion mark. Unlike the last DeFi summer, the DeFi boom of this market cycle has spread beyond Ethereum, with other leading ecosystems such as Tron, Solana, Ethereum L2s, BNB Chain, and even Bitcoin enjoying higher on-chain activity.
What Is a Decentralized Exchange?
A decentralized exchange (DEX) is a type of cryptocurrency exchange that operates without a central authority, enabling users to conduct financial transactions directly with one another, like a farmers' market for cryptocurrencies, where you can buy and sell digital currencies directly with other people without an intermediary.
In a regular cryptocurrency exchange (which is like a supermarket), the exchange company controls the process. They take your money, hold your cryptocurrencies, and help you trade with others on their platform.
Now, imagine a farmers' market. Instead of a supermarket running everything, you have many sellers and buyers meeting directly. You talk to the person (counterparty) selling apples (or, in this case, a specific cryptocurrency) and buy from them directly. There's no supermarket in between.
A DEX works like this farmers' market. It lets you trade cryptocurrencies directly with other people. There's no company in the middle controlling your money or the trading. Everything happens between you and the other person. This is great for keeping control over your money and your trades. But just like a farmers' market, you need to know a bit more about what you're doing, like setting prices and handling your own money safely.
Decentralized Exchange (DEX) vs. Centralized Exchange (CEX)
DEXs represent a significant aspect of the decentralized finance (DeFi) movement, offering a more autonomous and direct way of trading digital assets. Unlike traditional, centralized exchanges (CEXs), where the exchange itself facilitates and controls the transactions, DEXs allow for peer-to-peer trading. Here are some ways DEXs differ from CEXs:
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Control Over Funds: In a DEX, you have complete control over your funds and private keys. You don't need to transfer your assets to the exchange, reducing the risk of losing your funds due to the exchange being hacked, going bankrupt, or engaging in fraudulent activities.
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Enhanced Privacy: DEXs typically require less personal information for account creation, offering greater privacy. Unlike CEXs, many DEXs don't require you to undergo a Know Your Customer (KYC) process, making them more accessible and private.
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Reduced Counterparty Risk: Since trades are peer-to-peer and do not require an intermediary, there's a reduced risk of theft, fraud, or mismanagement by the exchange.
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Resistance to Censorship: Being decentralized, DEXs are less susceptible to government regulation, censorship, or shutdowns, making them more robust and accessible in various geopolitical scenarios.
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Wide Range of Tokens: DEXs often list a broader range of cryptocurrencies, including newer and less-known altcoins that might not be available on centralized platforms.
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Transparent and Immutable: Transactions on a DEX are recorded on the blockchain, offering transparency and immutability. This feature makes all operations on the platform verifiable and tamper-proof.
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Innovation in Trading and Financial Products: DEXs are at the forefront of implementing innovative trading and financial products in the DeFi space, such as yield farming, liquidity mining, and automated market-making.
The Best Decentralized Exchanges of 2024
Now that we’ve covered the benefits that DEXs offer crypto traders and investors, it’s time to dive into the top decentralized exchanges in the crypto market. We’ve considered the following factors to assess and compile this list: total value locked (TVL), unique active wallets (UAW), market cap, and trading volume.
dYdX
TVL: $503 million+
DYDX Market Cap: $1.4 billion
Trading Volume: $1.13 billion
dYdX operates as a decentralized exchange focusing on advanced financial derivatives, margin trading, and perpetual contracts. dYdX was launched in July 2017, initially offering crypto margin trading, lending, and borrowing services over Ethereum layer-1. This launch marked the beginning of its journey as a prominent decentralized exchange in the cryptocurrency market.
Here’s a deep dive into the dYdX DEX and its workings.
Built on Ethereum's blockchain, it leverages smart contracts to offer a trustless and secure trading environment. Unlike traditional DEXs that primarily facilitate spot trading, dYdX provides a sophisticated trading experience typically associated with centralized platforms but with the added benefits of decentralization.
dYdX distinguishes itself with advanced trading options like leverage and short selling, uncommon in decentralized exchanges. It adheres to DeFi principles by allowing users to control their funds, unlike centralized exchanges. dYdX also uses StarkWare's StarkEx engine for Layer 2 scaling, reducing gas fees and increasing transaction speeds, crucial for DeFi trading.
The dYdX (DYDX) token is used for governance, staking, and liquidity provision in the dYdX decentralized exchange platform.
Uniswap
TVL: $6.25 billion
UNI Market Cap: $5.64 billion
Trading Volume: $1.5 trillion+
Launched on November 2, 2018, by Hayden Adams, Uniswap operates primarily on the Ethereum blockchain. It is known for its role as an automated market maker (AMM) and uses liquidity pools rather than a traditional market maker.
This approach allows a large number of Ethereum tokens to be accessible for trading. Uniswap's popularity stems from its efficient market creation, no fees for listing tokens, and its open-source nature, which allows for forking to create new exchanges. Uniswap's native token UNI can be used for governance, liquidity provision, and earning trading fee incentives within the Uniswap decentralized exchange (DEX).
Check out our deep dive into Uniswap and how it works.
As of April 2024, the Uniswap ecosystem enjoys over 300 integrations across DeFi apps and has enjoyed 100% uptime since launch. While Uniswap’s early versions, V1 and V2, are open source and licensed under GPL, Uniswap V3 is open source with slight modifications.
PancakeSwap
TVL: $2.4 trillion
CAKE Market Cap: $943 million
Trading Volume: $597 million
Launched in September 2020, PancakeSwap quickly became one of the most popular DEXs on the BNB Chain. Its popularity is due to its high-speed transactions and low fees. It allows users to trade various cryptocurrencies on the BSC network.
CAKE, PancakeSwap's native token, is used for staking, yield farming, participating in lotteries, and voting in governance decisions on the platform.
Since its launch, PancakeSwap has expanded to operate on several other leading blockchain networks, such as Ethereum, Aptos, Polygon zkEVM, Arbitrum One, Linea, Base, and zkSync Era. It enjoys a total liquidity of over $1.09 billion.
Curve
TVL: $2.4 trillion
Market Cap: $729 million
Trading Volume: $139 million
Founded by Michael Egorov and launched initially on Ethereum in 2017, Curve has since expanded to other blockchains like Avalanche, Polygon, and Fantom. It specializes in stablecoin trading and is known for its minimal trading fees and minimal slippage.
CRV, Curve's native token, serves as a governance token and is used to incentivize liquidity provision within the Curve ecosystem. Curve's popularity is attributed to its efficient stablecoin swaps and substantial monthly trading volume.
Balancer
TVL: $1.25 billion
Market Cap: $274 million
Trading Volume: $1.22 billion
Launched in 2020, Balancer is known for its multifunctionality as an AMM, DEX, and liquidity platform. It gained popularity due to its innovative AMM system and the ability to hold between two to eight cryptocurrencies in its "Balancer Pools."
BAL, the native token of Balancer, is used for governance voting and incentivizing liquidity providers on its automated portfolio manager and liquidity protocol.
SushiSwap
TVL: $403 million
Market Cap: $356 million
Trading Volume: $21.95 million
Launched in September 2020 by two anonymous developers, Chef Nomi and 0xMaki, SushiSwap started as a fork of Uniswap. It operates on the Ethereum blockchain and is popular for its unique reward system, where liquidity providers earn SUSHI tokens, which are also governance tokens.
Learn more about SushiSwap and its workings.
SUSHI, the native token of SushiSwap, grants governance rights and a share of the platform's fee revenue to its holders.
GMX
TVL: $555 million
Market Cap: $352 million
Trading Volume: $15 million
GMX was launched on Arbitrum in September 2021 and later on Avalanche in early 2022. It is a decentralized spot and perpetual contract trading platform known for its low swap fees and up to 30x leverage on trades. Its popularity is due to its unique value proposition for token holders and liquidity providers.
Here’s a look at some of the leading Arbitrum ecosystem projects.
GMX is used for governance and staking, providing holders with a share of the platform's trading fees and other benefits within the GMX ecosystem.
Aerodrome
TVL: $667 million
Market Cap: $296 million
Trading Volume: $47.7 million
Aerodrome is a decentralized exchange and liquidity protocol that was launched on August 29 on Coinbase's Layer 2 blockchain, Base. It quickly captured the DeFi community's attention by securing over $190 million in Total Value Locked (TVL) shortly after its launch, highlighting its significant impact and adoption within the blockchain space. The platform operates on an Automated Market Maker (AMM) model, drawing from the successful strategies of Velodrome V2 on the Optimism network to encourage liquidity on the Base blockchain. Despite the collaboration, Aerodrome remains an independent entity from Velodrome, focusing on serving as the primary liquidity hub for the Base blockchain and its users.
Explore other top crypto projects in the Base ecosystem.
The core of Aerodrome's ecosystem revolves around its native token, AERO, which serves multiple utilities including governance and incentivizing liquidity. Token holders can lock their AERO tokens to receive veAERO, an NFT that represents their locked stake and confers voting rights proportional to the amount and duration of AERO locked. This mechanism not only democratizes governance but also allows stakeholders to directly influence liquidity pool emissions and earn a share of the trading fees generated. The introduction of Aerodrome and its innovative liquidity provision and incentivization model contributes significantly to the diversity and resilience of the DeFi ecosystem on the Base blockchain.
Raydium
TVL: $832 million
Market Cap: $517 million
Trading Volume: $97 million
Raydium is a decentralized finance (DeFi) platform and automated market maker (AMM) built on the Solana blockchain, aiming to address issues such as high fees and slow transactions often associated with Ethereum's DeFi ecosystem. Launched in February 2021, Raydium offers a suite of DeFi services, including token swaps, liquidity provision, and a launchpad for new Solana projects called AcceleRaytor. It operates by integrating with the Serum DEX's order book, allowing liquidity from Raydium to be available for Serum and vice versa, thereby enhancing liquidity and trading efficiency across both platforms. This integration enables Raydium to offer its users rapid and cost-effective trading, liquidity provision, and yield farming opportunities.
Here’s a look at some of the best Solana DEXs.
The platform's native token, RAY, serves multiple functions within the ecosystem, including governance, transaction fee payments, and rewards for liquidity provision. Liquidity providers on Raydium can stake their tokens in liquidity pools to earn yield in the form of RAY tokens and a share of the trading fees. The platform's design emphasizes scalability, low transaction costs, and high speed, benefiting from Solana's infrastructure. Raydium's collaboration with Serum DEX also exemplifies how DeFi platforms can work together to create a more interconnected and efficient ecosystem.
VVS Finance
TVL: $216 million+
Market Cap: $217 million
Trading Volume: $5.25 million
Launched at the end of 2021, VVS Finance stands for "very-very-simple." It aims to make DeFi easy to use, offering low fees and high transaction speeds. VVS Finance includes a range of products such as Bling Swap and Crystal Farms. The native token VVS is used for staking and governance, allowing holders to participate in decision-making and earn rewards on the platform.
Bancor
TVL: $104 million
Market Cap: $114 million
Trading Volume: $3.73 million
Launched in June 2017, Bancor was the first-ever DeFi protocol and the inventor of automated market makers (AMMs) on the blockchain. Bancor is significant for evolving AMM pools into a core component of DeFi, attracting over $30 billion in deposited funds across various blockchains. BNT, Bancor’s native token, is used for governance, staking, and providing liquidity, enabling users to earn swap fees and participate in the platform’s decision-making process.
Camelot
TVL: $128 million
Market Cap: $113 million
Trading Volume: $1.25 million
Camelot is a decentralized exchange launched in 2022, built on the Arbitrum network, and is designed for efficient transactions and low fees. It stands out for its community and ecosystem focus, customizable liquidity protocol, and innovative features like Nitro Pools and spNFTs, offering liquidity providers more options. Its dual liquidity mechanism rewards yield farming participants, and it supports new Arbitrum-based projects, contributing to its rising popularity within the DeFi space.
The native DEX of the Arbitrum ecosystem, Camelot offers yield farming, Nitro pools, and launchpad features. Camelot's native token, GRAIL, is used primarily for governance and incentivizing liquidity provision, though detailed specifics might require further research to define its unique aspects within the Camelot ecosystem.
How to Choose the Best DEX to Trade On
When you're in the market for a decentralized crypto exchange (DEX), it's crucial to make an informed choice to ensure your trading experience is secure, efficient, and aligned with your investment goals. Decentralized exchanges, unlike their centralized counterparts, offer a unique set of features and benefits, but also come with their own challenges. To navigate this landscape effectively, here are several key factors you should consider when selecting the best DEX for your trading needs:
1. Ensure the DEX’s Security Protocols
Evaluate the security protocols of the DEX. Look into its history for any security breaches, and check if it has undergone reputable smart contract audits. Security is paramount to ensure your assets are protected.
2. Select a Platform with High Liquidity
High liquidity is crucial for executing trades efficiently. A DEX with good liquidity ensures you can buy and sell assets quickly and at prices close to market rates, minimizing the risk of slippage.
3. Assess Supported Assets and Blockchains
Make sure the DEX supports the cryptocurrencies you want to trade and is compatible with the blockchain network of your assets. Some DEXs may only support assets on specific blockchains like Ethereum or BNB Chain.
4. Check the User Interface and Ease of Use
A user-friendly interface is important, especially for beginners. The DEX should be easy to navigate and provide clear instructions for trading and other transactions. Ensure that the DEX you pick and its underlying blockchain network have suffered no or very little downtime, which could affect your trading activities and profits.
5. Review Transactions Fees and Associated Costs
Consider the fee structure of the DEX, including trading fees and network transaction fees. Lower fees can make a significant difference, especially if you indulge in high-frequency trading or trade large volumes.
Risks of Trading on DEXs
Trading on decentralized exchanges (DEXs) offers many benefits but also comes with its own set of risks, such as:
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Smart Contract Vulnerabilities: Since DEXs rely heavily on smart contracts, any bugs or vulnerabilities in these contracts can lead to significant losses. Unlike centralized exchanges, there's typically no entity to cover losses if something goes wrong.
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Low Liquidity on Less Popular DEXs: Some DEXs, especially newer or less popular ones, may suffer from low liquidity, leading to high slippage. In such instances, large orders can significantly impact the market price, making it harder to execute large trades at stable prices.
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Impermanent Loss for Liquidity Providers: If you're providing liquidity to a DEX's liquidity pool, you're exposed to impermanent loss. This occurs when the price of your deposited assets changes compared to when you deposited them, potentially resulting in a loss if you withdraw them at an unfavorable time.
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Lack of Regulations: The lack of regulatory oversight can be a double-edged sword. While it offers freedom from traditional financial systems, it also means less protection for users against fraud, market manipulation, and other illicit activities.
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Risk of Potential User Error: DEXs generally require a higher level of technical knowledge and self-custody of funds. Mistakes like sending funds to the wrong address or interacting with the wrong smart contract can result in irreversible losses.
Conclusion
The decentralized exchange (DEX) landscape is thriving in 2024, offering diverse options for all crypto enthusiasts. This year's DEX advancements have enhanced security, user experiences, and token variety, reflecting a shift toward financial decentralization.
From Uniswap's pioneering automated market maker model to PancakeSwap's innovative approach and Curve's focus on stablecoin trading to SushiSwap's community-centric rewards system, the choices are as varied as the traders' needs. The challenge for traders will be to stay informed and adaptable, navigating this ever-changing landscape with an eye on security, efficiency, and the underlying values of decentralization.
Further Reading