Why acquiring a Decentralized Exchange Solution will establish a strong future for your enterprise in the industry?

Bitcoin
  • Exchanges that do not comply with the KYC (Know Your Customer) and AML (Anti Money Laundering) norms are forced to reduce their scope of operations in jurisdictions where the rules are strictly implemented.
  • Those exchanges that do not disclose the crypto holdings of their investors and taxes paid on profits have been penalized or debarred from trading temporarily by the regulatory bodies.
  • Those platforms running illegal derivatives trading have been banned from onboarding any new investors.
  • These steps are done mainly to make crypto service providers more compliant though many feel that it is an attack on their financial sovereignty.
Centralized vs Decentralized
  • Centralized crypto exchanges suffer from various security loopholes and are often targeted by hackers resulting in fund losses worth millions of dollars affecting both their reputation and credibility. Many top centralized exchanges like Mt.Gox, Bitstamp, Bitfinex, and CoinCheck have been hacked in the past few years.
  • Some of the decentralized exchanges making waves currently are Uniswap, Synthetix, Curve Finance, Waves DEX, IDEX, and Balancer.
  • They do not have access to the information and the assets of any of their customers.
  • They have replaced the role of a broker with robust smart contracts and the derivatives trades are settled between different users.
  • A programmable smart contract allows the market makers to set the fees for managing the transactions and for accepting an order and posting it in the order books.
  • Any underlying asset of the user can be effectively transformed into a derivatives instrument quickly.
  • There is also no requirement for traders to follow KYC procedures ensuring faster user onboarding.
  • Establishing a peer-to-peer contract model might offer better spreads, flexible terms and conditions, and deeper liquidity for the users.
  • The privacy and safety concerns faced in centralized exchanges can be countered by giving users a permissionless method to invest with leverage and swap assets.
  • It can solve certain technical issues like network congestion and high processing fee which affects the scalability of a platform.
  • Self custody of the funds is a great incentive for users to join the decentralized movement.
  • By having the entire exchange operate on a distributed ledger, it eliminates the chances of a single point of failure by offloading both the control of funds and the trading activities to the automated smart contracts. There is no possibility of server downtime as well.
  • They charge lower fees through minimal overhead requirements.
  • They help in better price discovery through off-chain order books, order splits, and P2P negotiations.
How does a Decentralized Exchange Works
  • A user can use his/her wallet address to register on a decentralized exchange. There is no formal sign-up process.
  • An order can be placed on the platform by specifying the number of cryptocurrencies to be exchanged at a particular rate, and the time till which the bidding of assets is allowed.
  • Your order request will soon become public and other users of the network will start submitting their bids on the platform.
  • Once the bidding time has expired, the system automatically identifies and executes the best offer with the help of smart contracts.
  • Despite showing promising signs of growth, the liquidity in decentralized exchanges is far less when compared to their centralized counterparts.
  • The user experience is still inferior and professional traders or wealthy investors may not find anything special in decentralized exchanges than centralized exchanges.
  • They do not have any advanced trading tools like margin trading, futures trading, take-profit, stop-loss orders, and limit orders on their platforms.
  • There is a lack of interoperability between various decentralized exchanges in the market-leading to vulnerable infrastructure and limited differentiation from a centralized exchange. There is a need for more cross-chain exchanges to emerge for more decentralized exchange platforms to seamlessly interact with one another.
  • The speed at which they validate each transaction on the blockchain network takes time and is low when compared to centralized exchanges like Binance and Coinbase.
  • The smart contracts which they depend a lot on can have certain vulnerabilities in the form of reentrancy attacks, overflows, and underflows.
  • Since they do not follow KYC and AML norms, they do not accept fiat currencies which can affect local traders who do not have any exposure to cryptocurrencies.
  • Frontrunning is another issue affecting the decentralized exchanges as the transaction remains held in a pending mempool. This leads to the need for setting a higher gas price so that the new transaction will soon be mined first into the block.

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Aaron silva

Aaron silva

Aaron Silva is a well-known cryptocurrency consultant specializing in dealing with digital trading businesses. https://www.infiniteblocktech.com/