In this blog post, you will get a Comprehensive guide on DEX Aggregators and what are the key usabilities of it in the world of blockchain and DeFi.
In this article, we will examine these fascinating tools, their differences and similarities with the traditional exchanges, and how they work, along with the differences that separate them from each other in terms of fees and a list of supported cryptocurrencies.
We will also cover some of the top DEX aggregators in detail to help you make an informed decision about your choice of DEX tool.
Related Article: What is Decentralised Finance (DeFi)? – Future of Finance
An Introduction to DEX Aggregators
A DEX aggregator is a service that allows users to view prices, trade volumes, and order books from multiple decentralized exchanges (or DEXs) within one interface.
The purpose of a DEX aggregator is to provide customers with greater liquidity by providing access to DEXs that may not otherwise be available or accessible in their region.
In turn, having a greater amount of buyers and sellers gives traders better prices than they’d get on an individual exchange.
Type of Cryptocurrency Exchanges
Cryptocurrency exchanges are characterized into two principle types including centralized and decentralized.
1. Centralized:
A central entity that handles all transactions, including order matching and execution. The most popular example of a centralized exchange is Coinbase or Gemini. Some examples of centralized exchanges include Binance, Bitfinex, Bittrex, Kraken, and ShapeShift. However, each uses its own system to manage trades on its platform meaning centralized exchanges will differ from one another in both features and price structure. And some operate differently from others; Gemini operates differently than GDAX for instance since it is not owned by Coinbase.
2. Decentralized:
Trading does not occur on any singular entity’s server but rather occurs across multiple nodes around a network through an automated process. This means trading cannot be shut down if authorities seize one node within a specific blockchain. Examples of DEXs are Bitshares and Waves. There are other blockchain projects developing DEXs such as 0x Protocol, Kyber Network, Loopring Protocol/Relay Tokens, etc. However many established cryptocurrencies have opted to partner with centralized exchanges.
Related Article: Top 10 Decentralized Exchange App(s): DEX Applications
Why Use a DEX Aggregator?
DEXs are highly liquid, DEXs offer a wide range of coins and tokens that can be exchanged directly between two parties without an intermediary.
However, as more and more projects launch their own DEX, it can become difficult to find prices, trade pairs, and other necessary information on all of them.
A DEX aggregator solves that problem by providing a single point of access to all different kinds of decentralized exchanges.
How Do DEX Aggregators Work?
DEX aggregators are like layer-2 solutions built on top of existing decentralized exchanges.
They provide a single point of entry for traders to view all available markets, order books, and prices across multiple blockchains.
The benefit is an added layer of convenience for investors, as well as enhanced liquidity.
For example, say you wanted to trade QSP tokens with Kyber Network (KNC) you’d first have to find a marketplace where both were being offered in exchange, then use that marketplace’s interface to place your trades.
Having access through one explorer/aggregator solves both issues and dramatically simplifies trading if it becomes common practice among DEXs.
Use of DEX Aggregators in DeFi
DEXs have seen significant adoption since their release. However, DEXs still face issues with liquidity and transparency in pricing, which are two of the most often cited complaints against them.
DEX aggregators can help resolve these problems by providing a bridge between centralized and decentralized exchanges.
DEX aggregators can match orders between centralized and decentralized exchanges to maximize liquidity by building order books on top of multiple blockchains.
3 Major Benefits of Using a DEXs
1. Decentralized exchanges (DEXs) don’t require you to entrust your funds to a third party.
2. DEXs match buyers and sellers directly, instead of a central authority.
3. Exchanges created through an aggregator are more likely to provide value as they bridge orders from multiple platforms while retaining all benefits of decentralization.
Top 5 Cryptocurrencies DEX Aggregators
The top Cryptocurrencies DEX Aggregators are Waves DEX, Kyber Network, Ox Project, Bancor Network, Blocknet, so now let’s understand each one in detail.
1. Waves DEX:
Waves DEX also has a special service Nxt Voting Center where you can participate in blockchain-based voting systems both within the WAVES platform and in other projects as well; for example the development of new features or coin launching.
2. Kyber Network:
Kyber Network is a cryptocurrency exchange that can be used to instantly convert between crypto-assets. It facilitates instant conversion and payment services between platforms, businesses, and individuals. Unlike traditional exchanges, it does not hold any funds or collect sensitive information such as credit card numbers. Instead, it allows users to trade assets from within their own wallets. Those wishing to withdraw funds from an exchange must do so via an external wallet address.
3. Ox Project:
The Ox protocol is a decentralized liquidity marketplace protocol. It provides immediate and ongoing access to liquidity pools of tokens, cryptocurrencies, and other assets. Through these pools, users can increase their token portfolio without incurring high exchange fees or waiting for withdrawal confirmations.
4. Bancor Network:
Bancor is a decentralized liquidity network that provides users with a simple, low-cost way to buy and sell tokens. The open-source protocol allows token holders to convert tokens directly through their wallets at continuously calculated prices based on demand.
5. Blocknet:
It is a peer-to-peer decentralized exchange, which enables cross-chain atomic swaps and truly decentralized order matching. The XBridge is in its final testing phase. It’s a fully encrypted, off-chain relay that allows orders to be made across blockchains without depositing funds with an exchange or trusting third parties. In its completed form, it will allow users to trade any cryptocurrency pairs they wish without needing to deposit their coins in escrow with an exchange or trust any third party at all.
Related Article: Top 16 Decentralized Wallet App | DeFi Wallet
How does a DEX make money?
DEXs do not have a centralized entity, such as a company or person, and therefore have no central source of income.
Instead, they rely on user fees to cover their costs, This type of fee is called a taker fee and goes to market makers who provide liquidity for buy-sell orders that execute immediately.
When executing trades on DEXs, it is important to be aware of these maker-taker fees, which can range from 0% to over 10%.
The majority of DEXs charge a fixed percentage in addition to whatever price slippage may occur from having to fill an order directly from another exchange (see Market Structure).
There are some exceptions though, where users pay fees based on how large the order is. Furthermore, there are decentralized exchanges that have various rules concerning what amount can be traded with each order such as half or full amounts, and others don’t take any fees at all.
What is DEX Blockchain?
A decentralized exchange, also known as a DEX, is an exchange where you have full ownership and control of your digital tokens at all times.
Unlike on a centralized exchange, you always have access to your funds, which makes DEXs significantly more secure than CEXs.
These exchanges run independently of any third party and don’t require permission to operate.
This means that users never have to relinquish control over their funds or expose their private keys to a third party.
What is an Aggregator in DeFi?
If you’re new to decentralized finance (DeFi), you may have heard some unfamiliar terms. For example, DEX is short for decentralized exchange and OMG is an abbreviation for OmiseGo.
Both refer to different types of asset-management software that enable users to manage their portfolios on a decentralized network.
In layman’s terms, DeFi refers to software and protocols that help users create and trade securities outside of traditional financial markets.
Examples of DEX Aggregators
Dexdex and DexGemini are examples of DEX aggregators, These platforms help users search for decentralized exchanges on various blockchains (such as Ethereum or NEO).
Users can then perform trades directly from their platform, instead of having to register for and use each exchange individually.
This allows for better cross-chain transactions and higher liquidity on all exchanges in one place.
Conclusion
It is evident that a growing number of cryptocurrency exchanges are becoming decentralized and adopting peer-to-peer (P2P) trading mechanisms.
DEX aggregators serve as an essential component in unifying DEXs, providing traders with unified pricing and liquidity information.
This will undoubtedly accelerate the adoption of blockchain technology by Wall Street professionals.
Meet Nitin, a seasoned professional in the field of data engineering. With a Post Graduation in Data Science and Analytics, Nitin is a key contributor to the healthcare sector, specializing in data analysis, machine learning, AI, blockchain, and various data-related tools and technologies. As the Co-founder and editor of analyticslearn.com, Nitin brings a wealth of knowledge and experience to the realm of analytics. Join us in exploring the exciting intersection of healthcare and data science with Nitin as your guide.
