Why We Need DEX?
The first interaction that people have with cryptocurrency is through crypto exchange - the portal from where you buy your cryptocurrency. The most common crypto exchange that people generally know of is the Coinbase; where anyone can create an account and buy the crypto token of your choice from the fiat currency (e.g., USD). Centralized crypt exchange give consistency high liquidity, have a high trading volume and it is a faster way of transaction. However, over time the centralized crypto exchange (CEX) showed several flaws in the operation that created the space for the need of Decentralized Exchange (DEX). The most common problems with CEX include: First, the centralized exchanges inherently face security issues. The custody of funds pose a huge security threat to the exchanges and its users. In centralize exchange, a trusted third party, takes control of the funds to create a pool of liquidity. The exchange links users’ wallets with them and become an attractive target for hackers. Many of these exchanges were hacked in the last few years causing big losses. For instance, Coincheck (Second largest Japanese exchange lost $500m, Bitgrailt lost $195m, and Binance lost $40m worth of NEM. Second, in CEX, user gives up control of its money to a third party that is where it becomes more unsafe. The user’s hot wallet is connected to the exchange that means it is connected to the internet and is always vulnerable to hacking. The other option is to keep all your funs in the cold wallet (off-line) but it is also not a great idea after the Quadriga exchange debacle. The CEO of the cold wallets died suddenly and it resulted in the loss of $145 million worth of crypto. Third, the cost of listing the token on CEX is very high nearly around $3million. This huge amount is usually the cut of the third party (brokers, consultants or ICO firms etc.) Therefore, a new better alternative known as Decentralized Exchange (DEX) came up.
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