What’s a DEX?

DEXs are decentralized crypto exchanges that offer access to digital assets without an intermediary. Instead of relying on a company to fill and record crypto trades, DEXs offer peer-to-peer (P2P) token swaps using blockchain technology. More specifically, DEXs use smart contracts to execute trades. Smart contracts automatically run orders once various predetermined features are met.

Since there aren't centralized authorities monitoring trades or supplying crypto, DEXs rely on average crypto investors to provide token liquidity. On most DEXs, anyone can put their crypto into liquidity pools, which provide the DEX with trading pairs. To incentivize more users to add their crypto to liquidity pools, DEXs usually offer a percentage of trading fees, providing a way for people to earn yield on their money that wasn’t previously possible.

What are centralized exchanges?

Unlike DEXs, centralized crypto exchanges (CEXs) don't require user funds to provide liquidity to crypto traders. Since companies control CEX platforms, executives always oversee the daily volume and transactions on the exchange. A few prominent examples of CEXs in the U.S. include Coinbase, Gemini, and Kraken. As for DEXs, the most prominent applications live on the Ethereum blockchain and include Uniswap, Curve Finance, and SushiSwap. 

CEXs also submit to their jurisdictions' regulations to offer legal trading services. This often means CEXs require more ID paperwork from users versus DEXs. Indeed, most DEXs only need traders to connect their crypto wallets to make an exchange. 

Another critical difference is that CEXs can accept fiat currencies. Since DEXs are based on their respective blockchains, they can only accept crypto funds for swaps. People must have crypto in a compatible wallet to interact with a DEX.

Lastly, it's worth mentioning that the trades on a CEX are custodial. In other words, the crypto people buy on a centralized exchange isn't 100% in their control. If investors leave their crypto on a CEX, the company is holding the crypto on their behalf. It's only when people transfer their crypto from a centralized exchange to a private wallet that they own their digital assets.

How do DEXs work?

Many DEXs use a combination of smart contracts and liquidity pools on top of a blockchain. The smart contract code helps fill trades without needing a third party to record order books. Any crypto investor could supply DEXs with their tokens in "pools," which allows users to trade these assets.

While that's the general way DEXs work, there are nuances among different DEX platforms. Three of the most common DEXs are automated market makers, on-chain order books, and off-chain order books.

Types of decentralized exchanges

Automated market makers (AMM): AMMs are DEXs that don't use order books to record transactions. Instead, they rely on autonomous smart contracts and liquidity pools to provide users with a decentralized trading experience. They also use oracles like Chainlink to provide information on current crypto prices. 

On-chain order books: On-chain order books use a system of nodes and crypto miners to validate transactions and store this information on the blockchain. These order books are the same as those in centralized crypto exchanges, except they don't rely on a company to confirm transactions. Since these order books are publicly viewable on the blockchain, they’re considered more transparent than off-chain order books. 

Off-chain order books: Although off-chain order books use a similar verification method to on-chain order books, they rely on external centralized servers to record trades. The benefit of this model is that off-chain order books typically offer lower fees than on-chain order book DEXs. However, off-chain order books don't have the same decentralization as competing DEXs. 

What are the most popular DEXs?

At the time of writing, following are some of the top DEXs:

Uniswap: Built on Ethereum, Uniswap is by far the largest DEX in the cryptocurrency space. Recent estimates suggest Uniswap holds roughly 50% of the total volume for all DEXs and regularly handles more than $1 billion in daily transactions. Due to its size and reputation, Uniswap offers the greatest liquidity and security for DEX trading. 

PancakeSwap: PancakeSwap is the largest DEX on the Binance Smart Chain and has a similar layout to Uniswap. However, since PancakeSwap is on the BSC, it tends to have lower fees than Ethereum-based DEXs. The lower fee structure has attracted many retail investors who don't want to pay the higher prices for interacting with Ethereum. 

Curve Finance: Curve is an AMM DEX on Ethereum that specializes in stablecoin pairs. Unlike many competing DEXs, Curve doesn't offer a ton of speculative altcoins. Instead, it has an algorithm that prioritizes low fees and low slippage between supported digital assets. 

What are the benefits of using DEXs?

• Anonymity: Many people prefer DEXs over CEXs because they don't require know-your-customer (KYC) or anti-money laundering (AML) documentation. People with a crypto wallet can use a DEX without giving away their identity. 
• Transparency: There's no need to trust that a third party will execute trades on a user's behalf when using a DEX. All transactions are on a public ledger, which gives traders more certainty over their digital assets. 
• Access to private keys: When people trade on DEXs, the tokens go directly into their crypto wallets. People who value self-custody don't have to worry about centralized exchanges holding their tokens. 
• Wider altcoin selection: Often, crypto traders have an easier time finding new, small, or obscure altcoins on DEXs. Since CEXs are heavily regulated, they typically don't take as many risks with unproven crypto projects that you may see on DEXs. 

What are the disadvantages of using DEXs?

• Smart contract vulnerability: Since AMMs rely on code, traders on DEXs need to trust that there are no bugs in the protocol. It's always possible that bad actors could hack a DEX. 
• Lack of customer support: DEXs don't have dedicated customer service divisions like CEXs. If users have an issue using a DEX, it can be challenging to find reliable help. 
• Liquidity risk: DEXs must rely on average users to deposit funds for liquidity. Although many DEXs have grown their liquidity pools, they aren't as fluid as CEXs. DEX users may have to pay higher prices if the trading pair they want doesn't have a ton of liquidity. 
• Poor UI/UX for beginners: People who aren't already familiar with using a crypto wallet may struggle to interact with a DEX. These decentralized platforms don't have the same simplified UI found on many centralized exchanges. 
• Often limited to one chain: Although some Web3 developers are trying to create a multi-chain DEX, most of these exchanges are only available on one chain. If you're interested in tokens on multiple blockchains, you’ll have to interact with various DEXs.
• More prone to scam tokens: Since DEXs aren't centrally regulated, there aren't as robust screening standards as for altcoins. This makes DEXs more prone to scams, so users must be extra careful when dealing with low-cap DEX tokens. 

https://worldcoin.org/articles/what-is-a-dex

ETHEREUM CEX Inflow / Outflow (Daily)

In the chart related to CEX, until November 5, the distance between the Inflow and Outflow lines has started to increase. In fact, it indicates more token exit than its entry into CEX.

On November 8th, 9th, and 10th, when the FTX event happened, we see the greatest distance. In fact, a huge output of tokens from CEXs.

From that date on, the distance between the lines was not the same as before! Users have lost trust in CEXs.

In the chart of DEXs, we see the complete opposite of CEXs.

On November 8th, 9th and 10th, we see a large amount of input in DEXs.

The two graphs below show the outflow of liquidity from CEXs and the use of DEXs.

ARBITRUM CEX Inflow / Outflow (Daily)

In the Arbitrum network, the conditions are different.

In CEX, there is more entry on November 8, 9 and 10 and less exit.

In any case, after those dates, the output was more than the input.

The rise of the orange line compared to the blue line indicates more outflow of liquidity from CEX.

In DEXs, we see a constant inflow and outflow of liquidity and apparently they are only used for SWAP.

Top Cryptocurrency Decentralized Exchanges

CoinMarketCap website lists the top DEXs. They are ranked by highest volume.

Currently, Uniswap is in the first rank of DEXs with the largest volume. A strong project supported and developed by a strong team.

Then there is the innovative dYdX project, which has grown tremendously in the past year.

DEXs such as Balancer, Curve, DODO and Pancakeswap are also known.

Due to the competition between DEXs, various criteria and parameters have made them the most used and popular among users.

Image:

Number of Transaction / Unique User

We named the week when the big thing happened to FTX as FTX Big Bang Week.

The previous days and the following days are also specified separately.

The number of transactions and the number of Unique users are also displayed in separate graphs on the Ethereum and Arbitrum networks.

On November 8th, 9th, and 10th, the number of Unique users on the Ethereum network increased significantly.

Swap over DEXs

Many DEXs have been used in recent weeks, but Uniswap, with versions 2 and 3, has managed to acquire the most swaps.

Two normalized graphs can be seen below.

On November 9, Uniswap version 3 has been widely used.

The swaps have increased on that date and the lack of confidence in CEXs caused the prices to fall, and accordingly, the swap from tokens to stable tokens increased.

CONCLUSION

• Currently, Uniswap is in the first rank of DEXs with the largest volume. A strong project supported and developed by a strong team.

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• From that date on, the distance between the lines was not the same as before! Users have lost trust in CEXs.

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• On November 8th, 9th and 10th, we see a large amount of input in DEXs.

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• We named the week when the big thing happened to FTX as FTX Big Bang Week.

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• The swaps have increased on that date and the lack of confidence in CEXs caused the prices to fall, and accordingly, the swap from tokens to stable tokens increased.

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• After what happened to FTX, most investors try to keep their capital in their wallets and try to use CEXs less.

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• It seems that DEXs will be more popular in the new era than before and more projects will start working with the aim of producing valid DEXs.

ETHEREUM - Number of Swap over DEXs

Busy Hours

In this review, we discussed the hours when the most swaps occurred during the previous days.

In fact, the most swaps have occurred in certain hours.

4:00 pm has been used the most with 5.03 percent.

The least use of swap is at 9 am.

In 24 hours a day, swaps are specified separately.

ETHEREUM - Hourly Swaps