Decentralized exchange

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A decentralized exchange (DEX) is a cryptocurrency exchange which operates in a decentralized way, i.e., without a central authority. Decentralized exchanges allow peer-to-peer trading of cryptocurrencies.[1]

Ledger login on Switcheo Exchange

Because users do not need to transfer their assets to the exchange, decentralized exchanges reduce the risk of theft from hacking of exchanges.[2][3] Decentralized exchanges can also prevent price manipulation or faked trading volume through wash trading,[4] and are more anonymous than exchanges which implement know your customer requirements.[5]

There are some signs that decentralized exchanges have been suffering from low trading volumes and market liquidity.[1][5] The 0x project, a protocol for building decentralized exchanges with interchangeable liquidity attempts to solve this issue.[6]

List of Decentralized exchanges[edit]

Decentralized exchanges come in varying degrees of decentralization, where different exchanges decentralize different components. The cost of decentralization is usually paid for in user experience, such as Bisq's fiat pairing where users must put their Bitcoins in a 2/3 multisignature wallet until a fiat transfer is confirmed; where the buyer, seller and a community trusted dispute arbitrator each hold a key.[7]

Name Active Private Key Ownership Peer to Peer Transactions Open-source Registration Required Regulated
Bisq Yes[7] Yes[7][8] Yes[7][9] Some[a][b]
Crypto-bridge Yes[12]
DDEX Yes[13]
Etherdelta No
Forkdelta Yes[14]
Hadax
IDEX Yes[c]
Newdex
Switcheo Exchange Yes[16] Yes[17][b]
Waves
Binance Dex No[d] Yes [19] Yes[19]

Notes

  1. ^ Permission-free access: There are no restrictions for users taking part of trades[7]
  2. ^ a b Uses an arbitrator in cases of fiat-pairing disputes.[10][11]
  3. ^ Blocks users accessing the exchange from within New York[15]
  4. ^ Not yet released [18]

Huobi runs a decentralized exchange called "HADAX" (Huobi Autonomous Digital Asset Exchange), with community voting for which coins to list.[20][21] Binance is developing a decentralized exchange.[4]

Drawbacks[edit]

Due to a lack of KYC process, and no way to revert a transaction, users are at a loss if they are ever hacked for their passwords or private keys.[22]

Degrees of Decentralization[edit]

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 being IDEX blocking New York State users from placing orders on the platform.[15]

References[edit]

  1. ^ a b Russolillo, Steven; Jeong, Eun-Young (2018-07-16). "Cryptocurrency Exchanges Are Getting Hacked Because It's Easy". Wall Street Journal. ISSN 0099-9660. Retrieved 2018-09-11.
  2. ^ Sandle, Tim (2018-09-09). "Big investment in cryptocurrency startup Altcoin.io". Digital Journal. Retrieved 2018-09-11.
  3. ^ Castellanos, Sara (2018-03-06). "Alexis Ohanian's VC Firm Invests in Crypto Trading Platform". Wall Street Journal. ISSN 0099-9660. Retrieved 2018-09-11.
  4. ^ a b Young, Joseph (2018-08-11). "Decentralized Crypto Exchanges Can Solve Fake Volumes And Malpractices". Forbes. Retrieved 2018-09-11.
  5. ^ a b Fanusie, Yaya (2018-07-12). "Good Crypto, Bad Crypto: Blockchain Projects Gaining Legitimacy While Spawning An Underground". Forbes. Retrieved 2018-09-11.
  6. ^ "0x lets any app be the Craigslist of cryptocurrency". TechCrunch. Retrieved 2018-11-24.
  7. ^ a b c d e Mülli, Alexander (July 2015). "A Decentralized Bitcoin Exchange with Bitsquare - Attack Scenarios and Countermeasures". Merlin: 8–9.
  8. ^ "Bitfinex Heist Rings the Alarm of Bitcoin Centralization - CoinDesk". CoinDesk. 2016-08-15. Retrieved 2018-11-13.
  9. ^ "bisq-network/bisq". GitHub. Retrieved 2018-11-03.
  10. ^ "FAQ Bisq". 2018-11-24. Archived from the original on 2018-04-18. [...] traders make a list of arbitrators they approve. When a new trade is initiated, an arbitrator is randomly selected from among the traders’ overlapping, approved selections.
  11. ^ "Switcheo - Website Terms of Use". 2018-11-24. Archived from the original on 2018-11-24. Retrieved 2018-11-24. Any dispute arising out of or in connection with this contract [...] shall be referred to and finally resolved by arbitration administered by the Singapore International Arbitration Centre (“SIAC”) [...] The Tribunal shall consist of one arbitrator
  12. ^ Graphical User Interface for CryptoBridge DEX. Contribute to CryptoBridge/cryptobridge-ui development by creating an account on GitHub, CryptoBridge, 2018-11-27, retrieved 2018-12-06
  13. ^ "User Agreement". DDEX. Archived from the original on 2018-10-11. You must verify that you are not a US Citizen or Resident since DDEX is currently not available for American users.
  14. ^ "ForkDelta". GitHub. Retrieved 2018-11-03.
  15. ^ a b @Aurora_dao (23 Oct 2018). "#IDEX will begin blocking new orders from users with New York State IP addresses on Thursday, October 25th (6pm UTC). Cancels and withdrawals will remain active" (Tweet) – via Twitter.
  16. ^ "Switcheo Ethereum". GitHub. Retrieved 2018-11-03.
  17. ^ "Switcheo Website Terms of Use". switcheo.network. Archived from the original on 2018-11-24. By visiting this Website, you agree that the laws of the Republic of Singapore
  18. ^ "Binance Decentralized Exchange to List Almost Any Coin, CEO Says". 2018-03-13. Archived from the original on 2018-04-18.
  19. ^ a b "Binance Decentralized Exchange to List Almost Any Coin, CEO Says". 2018-03-13. Archived from the original on 2018-04-18. The network [...] will provide coin traders a decentralized exchange that handles transactions through an automated process, eliminating the need for a third party to hold and trade funds.
  20. ^ Nguyen, James (2018-06-27). "Australian Tokens Can Now Apply For Listing On The Third-Largest Crypto Exchange". Forbes. Retrieved 2018-09-11.
  21. ^ Liang, Chenyu (2018-03-10). "Artful Asset Exchanges Skirt China's Cryptocurrency Ban". Sixth Tone. Retrieved 2018-09-11.
  22. ^ "Bloomberg - Record Crypto Heist Raises the Appeal of a New Type of Exchange". www.bloomberg.com. Retrieved 2018-11-17.