What is Decentralized Exchange System?

Decentralized Exchanges are platforms based on blockchain technology that enables owners to exchange crypto-based assets without the involvement of a third-party connection. These platforms are totally built up by algorithms which are called smart contracts.

DEX primarily aims to remove any intermediation between sellers and buyers cutting extra required costs that would otherwise be unnecessary. A DEX doesn’t hold the assets of its customers. Instead, the customers have them in their wallets all the time and they can decide what to do with them. In real-life reference, it can be understood as trading land for some money without any broker being involved who gets quite a high amount of cut-off for just connecting two people.

DEX has been serving the crypto community for quite some time now. They are used by many crypto asset owners because of their perks like

  1. Privacy

DEXs do not require customers to fill out KYC forms which make it easier to be anonymous and the transactions take place in anonymity.

  1. Cheap cost

Unlike centralized exchanges, no fees are required for setting up a meeting or maintaining infrastructure. DEXs are self-regulated and cut costs very efficiently.

  1. Less hacking risk

As there are no third parties involved and no private information is required to be given to anyone, the hacking risk is minimal in DEXs.

  1. Control of money

As the DEXs don’t hold custody of the user’s assets, the control of assets and money is totally in hands of the owner

There are different DEX platforms with Pancake swap and uni swap widely being used

UniSwap

Uniswap is a Decentralized Exchange platform that is based on Ethereum blockchain. It works on smart contracts using ERC 20 tokens. It was developed in 2018 by a team at Siemens and governed by UNI (a governance coin used in Uniswap) holders. These UNI holders have the right to vote to bring any change in the system.

Uniswap creates liquidity pools, provides liquidity and exchanges a variety of digital assets. It uses an open source code which is available to everyone to bring change in the blockchain code. Uniswap enables its users to provide liquidity to the market, trade digital assets and create a new market for exchange of assets.

The Uniswap works like an electronic ledger which transparently shows the activities of Uniswap users. Uniswap is an automated market maker as no centralised authority is involved. It uses a proof of work operating method which requires vast energy sources which is used to generate new cryptocurrency.

Pancake Swap

Pancake is a decentralised exchange similar to Uniswap but it is based on the Binance blockchain which claims itself to be a fast and cheaper alternative to Ethereum. Like Ethereum, Pancake swap uses user-generated liquidity pools for exchange.

These liquidity pools are created by De-fi farming opportunities. Unlike Uniswap, Pancake swap uses BEC-20 tokens. There are syrup pools in pancake swap to stake cake tokens. BEP-20 tokens are returned when CAKE tokens are deposited into the liquidity pool.