The cryptocurrency market got DEXs, which stand for “decentralized exchanges,” in 2014. Users can trade a wide variety of assets through these exchanges.
Still, the first versions of these systems might not be accessible for people to use. But designers have worked hard to make them easier to use and simpler since they were first made.
On a decentralized exchange, users can trade with each other directly instead of going through a central platform. Smart contracts, which are used to carry out the orders that traders give, make this possible. When traders choose a decentralized exchange (DEX) instead of a centralized exchange (CEX), their money is not kept on the DEX. Instead, users start their trades, at which point tokens are moved from the user’s non-custodial wallet to the user’s other wallet.
Using smart contracts and liquidity pools, AMMs can make decentralized exchanges more liquid. An AMM can also change the price of a token every time a transaction is made. When traders use a DEX based on an AMM, they interact with liquidity pools, which are databases with many token pairings.
When DEXs first started, there were many bad things about trading, like slow transactions, a lack of liquidity, and a generally bad user experience (UX). Veterans of the cryptocurrency market liked trading on platforms where they had to do things themselves, so they used decentralized exchanges the most. But some changes had to be made for decentralized exchanges to work well.
Can people find their way around decentralized exchanges easily?
Almost all of the first DEXs used to order books. Traders could place orders and then wait for other traders to fill those orders. Still, this system was hard to use because of many things. Because it is a decentralized exchange, users can’t store their tokens on the platform.
Instead, they have to trade directly from their wallets, which are not held in custody. So, customers must pay for gas when they place an order. If they mess up their order, they will lose money because the gas they paid for will go to waste.
Another problem with early DEXs was that users had to type in by hand how many tokens they wanted to trade and how much ether the trade would cost. If a user wanted to buy 53,451 Token A for 0.0037 ETH each, they would have to write it down or copy and paste it. Since users had to manually enter data, they were more likely to make “fat finger” mistakes, which led to them entering the wrong numbers.
Users who enter the wrong value might have to pay a lot more than they should for a token. For example, the price of one Token is A coin worth 0.0037 ETH, but if a user types in 0.037 ETH when placing an order, they will pay ten times as much.
Early DEXs also had trouble because they didn’t have enough liquidity. Since most liquidity came from other traders, users usually had to wait long before their big orders could be filled. Modern DEXs use liquidity providers and AMMs to make it easy for traders to buy and sell tokens quickly.
In the past, DEXs worked like large, hard-to-use order books. On the other hand, the user interfaces of DEXs today are much simpler and easier to use. During the bull market in 2021, more cryptocurrency investors are using DEXs to buy low market cap currencies. This is another sign that it is easy to use these exchanges. You can invest through Bit Software 360
The most common type of decentralized exchange (DEX) since the year 2020 is one that works like a swap. Traders with different levels of experience use platforms like Uniswap. AMMs are used by swap DEXs, and for the exchange to work, the user must connect their wallet to the decentralized application (DApp).
The user then chooses which coins they want to trade and how many. The tokens are then traded for cash and put right into their wallet. Since Uniswap’s DEX was so easy to use, other projects like PancakeSwap for BNB Smart Chain were done.
All of the experts in the DeFi market agree that the new DEXs are much easier to use than the older ones. Modern DEXs also have more trading options and are easier to use.