In recent times, many industries are now heavily dependent on Decentralized Finance (DeFi). Businesses in this sector have many opportunities to innovate and adapt to today’s transparent growth flow. 

The decentralized finance sector now includes decentralized exchanges (DEX) as a significant component. Such demand is conditioned by high security, transparency, and clarity within the financial operations made possible by these platforms.

This article is dedicated to the DEX platform, how it works, and its types. Apart from that, we will cover the notable reasons to choose a decentralized exchange.

What is the DEX Trading Platform?

DEX trading platform is a decentralized exchange where crypto traders make transactions directly without any intermediaries. These transactions between P2P are facilitated by self-executing agreements called smart contracts.

Generally, smart contracts are just blockchain-stored programs that execute when certain criteria are met. They are responsible for automating the execution of a platform’s key activities so that the result is immediately certain without time loss. 

Currently, Uniswap, Sushiswap, Traderjoe, Pangolin, Terraswap, and PancakeSwap are the topmost decentralized exchanges on various blockchain networks. And the number of users of DEX has increased tremendously.

Decentralized Exchange – How does it work?

Decentralized exchange is built on top of the blockchain and supported by smart contracts, where users hold their funds in custody, paying a transaction fee along with a network fee. There are several types of decentralized exchange designs, each offering different advantages and trade-offs in terms of feature sets, scalability, and decentralization. 

The three most common types of DEX are

  • Automated market makers (AMM),
  • Order book DEX, and 
  • DEX aggregators

All of this allows users to buy and sell directly with peers through their smart contracts. Let’s look at the types one by one in the following discussion.

Automated Market Makers

This automated market maker (AMM) uses smart contracts to solve liquidity problems and ensure user participation. Instead of matching buy and sell orders, these DEX’s smart contracts use pre-funded assets called liquidity pools. 

Other users contribute money to the pools, and as a result, they are eligible to receive transaction fees charged by the protocol for trading on that pair. 

Traders can manage orders or earn interest with the help of liquidity pools without the need for authorization or trust. AMM is more user-friendly as wallets like Metamask and Trust Wallets are used to settle transactions on the blockchain.

Order Book DEX

Aggregates all open orders to buy and sell for specific asset pairs. Buy refers to an order to buy an asset at a specific price, while sell refers to an order to sell an asset at a specific price. Besides, there are two different kinds of order books: on-chain and off-chain.

On-chain Order Book 

A decentralized exchange software program collects open order data on blockchains and helps traders promote their positions with the help of funds received from lenders on their platform.

Off-chain Order Book

DEX platforms that keep their order books off the blockchain only settle trades on the blockchain network to bring the benefits of centralized exchanges to traders. It helps the trading platform reduce costs and increase speed to guarantee that trades are executed at the price users want.

DEX Aggregator

Uses different protocols and mechanisms to address liquidity problems. It gathers information from various decentralized exchanges and facilitates trade to offer the best prices possible. This involves numerous calculations to provide traders with the best swap price shortly. 

So far we have seen the basic concepts of the decentralized exchange. Now, let’s see the compelling reasons for choosing the DEX platform in the following discussions.

Notable Reasons to Build the Best DEX Trading for Your Business

The business of decentralized exchange development has reached huge proportions today as it attracts many users worldwide to use this platform. So, developing the perfect DEX platform can be beneficial for startup entrepreneurs in revenue aspects. 

Here are some of the notable reasons for startups going for decentralized exchange software development are list below.

  • Helps to maintain the privacy and security of users. Therefore, not much personal information is disclose, which ensures a high level of transparency.
  • Threats of Intruder/Hacking are nullifies as users’ private keys are store securely in the blockchain. Since there is no central authority in decentralized exchange software, data and funds are safe.
  • By eliminating the intermediaries, the process of trading benefits from lower costs and greater efficiency. It is the primary factor that makes decentralized exchange software superior to a centralized platform. It enhances the overall trading experience, making it safer.
  • When there isn’t a central server involve, everyone in the network will have equal access to the data. It will be easy for them to make deals by trading cryptocurrencies with other users on the platform.
  • The user’s personal information will be private. They do not need to disclose their identities to anyone else on the network except the parties they are transacting with when trading cryptocurrency.
  • Trading will take place quickly, saving both buyers and sellers time and money using decentralized exchange software. It will facilitate quicker cryptocurrency exchanges at the most competitive prices. 

These are some of the notable reasons to choose to develop decentralized exchange software. Many startups are striving to do the decentralized exchange business with unique features along with high-end security. But they don’t know where to start and a question always lingers in their mind. Which is?

How Do I Get Started Developing the Best DEX Trading Platform?

As a startup, if you like to develop a DEX trading solution, there is no bound for the benefits you receive from it. You can develop by hiring professional blockchain developers from a prominent decentralized exchange development company like Zodeak.

We develop the decentralized exchange script with remarkable features, Incredible UI, and limitless options. Our team of skilled developers has worked on different projects and perfectly fits with your business’ objective. If you are planning to launch your own DEX platform contact our subject matter experts to share your business needs. 

Create a futuristic and best DEX trading platform & Stay one step ahead of ongoing trends!