Who leads the DEX space?

A handful of first movers have taken an early lead, but who are the innovators and what sets them apart?

The Decentralised Finance (DeFi) marketplace is on fire. Figures from Chainalysis have the current volume of DeFi-deposited assets at USD 100 billion and climbing — across a user base closing in on two million.

Category-wise, decentralised exchanges (DEXs) are the biggest story in DeFi. Insurgent companies like Polkadex, Uniswap, and SushiSwap offer crypto traders an alternative to popular centralised cryptocurrency exchanges (CEXs) like Coinbase.

But who are the leaders, and how does one DEX offer differ from the next? In this blog, we’ll highlight the companies disrupting the market and explain what sets them apart.

What’s a DEX?

With a decentralised crypto exchange, users can trade tokens without handing custody of their coins over to a third party. A DEX relies on automatically executed protocols called smart contracts that enable crypto trades to happen without a custodian in the middle. Traders can seek gains and not have to worry that a centralised exchange (CEX) like Binance or Coinbase might suddenly limit access to their crypto or restrict their ability to trade it.

That’s proven to be an attractive offer — particularly for more advanced crypto traders. But as the DeFi market expands and attracts more mainstream users, the DEX market has begun to diversify.

Polkadex: bridging the CEX and DEX gap

If DEX’s are going to reach a wider audience, one of the thorniest issues they have to grapple with is the cost of confirming a transaction. Most operate on the Ethereum network, where the blockchain’s ‘gas’ fees (paid to miners on a tier as a way to manage network congestion) can average USD 50 or more.

With Polkadex, fees on standard market orders are a nominal 0.2 per cent, while high-frequency trades happen without a cancellation penalty, giving algorithmic traders and institutions more freedom to enter and exit markets dynamically.

Polkadex can offer these advantages thanks to its use of the Polkadot ecosystem, a technical bridge that connects mainstream platforms like Ethereum to the myriad of specialist blockchains, coins, and tokens exploding onto the crypto landscape.

That includes linking up decentralised and centralised exchanges. For users who like the simplicity and user-friendliness of a CEX but want access to more exotic DEX offers, Polkadex’s trading engine opens doors to a broader range of blockchains, liquidity pools, and potential counterparties.

That makes Polkadex a kind of aggregator for cross-chain liquidity. With Polkadot, Parachains, and bridge-connected Blockchains operating in the background, choice goes up, the price goes down, and trade execution is faster.

Users can swap Polkadex’s PDEX tokens for others in 20 milliseconds or less, taking advantage of an off-chain order book that can handle processing volumes of up to 500,000 trades per second.

Another advantage: the drastic reduction or elimination of fees puts an end to system-gaming tactics like frontrunning. Trades are handled on a trustless basis, meaning it’s ‘first come, first served’; rather than who can pay the most.

Uniswap

Any discussion of the DEX space has to include Uniswap, the market leader in terms of total value locked (TVL), the DeFi equivalent of market capitalisation.

Uniswap is an Ethereum-based DEX that enables decentralised crypto trades via proprietary ERC20 tokens. Trades happen through an automated market maker (AMM) mechanism, which uses smart contracts to create and then manage liquidity pools. Users access the pools and use their tokens to swap cryptos and crytpo-backed assets within them.

The AMM model allows users to trade cryptocurrencies and earn yields in the form of trading fees and ERC20 tokens without a centralised exchange operator acting as an intermediary.

The total cost of transaction fees on Uniswap can be punishing. While Uniswap charges a 0.30 per cent fee for each trade — comparable to the fees charged by popular CEXs — gas fees paid to Ethereum miners as a way to manage network overload can be as high as USD 50. That makes Uniswap uneconomical for transactions of less than USD 1,000, shutting many individual traders out of the exchange.

SushiSwap: democratising platform governance

Next up on the DEX sweepstakes is SushiSwap, a community-owned and community-run decentralised cryptocurrency exchange.

It started life as a fork of Uniswap, built on Ethereum and using a version of its mother DEX’s automated market-maker (AMM) to connect buyers and sellers.

Perhaps the most significant distinction between the two is that SushiSwap’s native coin SUSHI also acts as a governance token, allowing big strategic decisions about the future running of the exchange to be taken by SUSHI holders.

Proposals for protocol improvements, changes to the DEX’s fee structure, creating new liquidity pools, or finding grants for new Sushi-related projects are decided by a vote amongst SUSHI holders.

Like Uniswap, SushiSwap charges a 0.30 per cent transaction fee. Unlike Uniswap, it hands a quarter of the fee to liquidity providers in the selected pool, then sets another 0.05 per cent aside for SUSHI holders who have staked their tokens in a special ‘SushiBar’ pool in order to earn rewards.

Gas fees, however, are still an issue on the platform.

Balancer: faster rollouts for new tokens

Balancer is an emerging Ethereum-based DEX providing a platform for Ether (ETH) and ERC20-backed assets.

As with other DEX’s, Balancer users can swap tokens, create liquidity pools, and earn yields. What Balancer does differently is calculate asset values using the ratio between assets shared in a given liquidity pool. Using that approach automatically affects the pool ratio and thereby the price of each asset, making the entire process fully ‘trustless’.

Balancer has rolled about another innovation called Liquidity Bootstrapping Pools (LBPs), which has made it a frequent go-to launchpad for new projects. LBPs allow crypto developers to distribute new tokens to a large number of initial holders while speeding up the discovery of their fair market value.

Something else setting Balancer apart from others is its fee structure. Transaction fees are set by pool owners, typically running between 0.0001% and 10%.

When a trader swaps one token for another, Balancer optimises the price of the order using existing pools. The trader can view the pool and check out its fee structure before confirming an order.

The DEX’s recently launched update, Balancer V2, also offers improved gas fee efficiency. It promises to reduce Ethereum mining fees by ensuring only final token amounts are transferred between vaults, even when trades are executed in batches against multiple pools.

PancakeSwap: taking DEX to a new blockchain

PancakeSwap is a newer decentralised exchange that, while similar in look, feel, and functionality to Uniswap, has been built on the Binance Smart Chain (BSC) instead of Ethereum.

Like other DEXs, PancakeSwap lets users swap tokens without a custodian in the middle, plus earn rewards from liquidity pools. Traders can stake their tokens to earn further rewards and take part in lotteries. It also uses an automated market maker (AMM) system to enable crypto trades.

What really makes PancakeSwap different, however, is its choice of development platform. Rather than build on Ethereum, where most of the action happens in DeFi, PancakeSwap’s project team chose relative newcomer Binance Smart Chain (BSC), and they can be more cost-effective as a result.

Binance Smart Chain is less established than Ethereum, but that means it boasts less congestion. Developers can take advantage of lower transaction costs to keep trading fees low while offering speedier transactions, making their pricing and user experience more competitive.

PolkaSwap; Another Polkadot-based DEX contender

A new project on the horizon called PolkaSwap promises another option for bridging the DEX and CEX divide. Like Polkadex, it plans to use the Polkadot ecosystem to connect mainstream platforms like Ethereum and eventually Bitcoin to other blockchains, coins, and tokens.

Its liquidity aggregation technology aims to connect decentralised and centralised exchanges too. It hopes to cater to users who want the user-friendliness of a Coinbase but also want access to a broader range of blockchains, liquidity pools, and potential counterparties.

Polkaswap says it will offer ‘smart’ liquidity routing to keep its pricing low, with means automating the process of locating and sourcing the best (e.g. most profitable / lowest cost) pool for any new order request. If it works, it could mean more profit potential for individual trades.

Like Polkadex, Polkaswap also plans to aggregate liquidity from both centralised and decentralised exchanges. That would help make it a sort of one-stop-shop for crypto traders and eliminate the need to sign up with numerous exchanges in order to access more exotic token pairs or find the best trade price for a more specialised trade.