Bitcoin (BTC) was difficult to acquire or sell in the early years of its existence because of a lack of choices accessible in the sector. To make BTC trades, customers either had to pay exorbitant fees or wait for a channel or countertrade to open up for days on end. Given the difficulties of transacting cryptocurrency, several questioned whether the revolutionary technology would be able to displace its rivals (conventional financial systems).
There are already millions of individuals across the world who hold crypto tokens or use the technology regularly. An essential contribution to the ease of access to cryptocurrency for retail investors has come through the fast growth of centralized crypto exchanges (CEXs) such as Coinbase, Binance, and BitMEX during the last decade. The CEXs made it possible to acquire almost any cryptocurrency using various payment methods, including bank accounts, PayPal, and credit cards.
Mt. Gox’s 850,000 BTC loss in an assault led to its demise in 2014, highlighting the perils of CEXs and the risk of retaining funds in these exchanges. A total of $2.66 billion has been lost since 2012 by centralized exchanges, including Quadriga CX, Bitfinex, Binance, and Crypto.com, which have all been targeted by scammers.
Centralized exchanges have developed a reputation for themselves and satisfied many consumers despite the recent attacks. The downsides of centralized exchanges remain. These organizations can still not own and manage user data (a goal that blockchain aspires to), and they must abide by local laws on know-your-customer (KYC) compliance and order book size restrictions. Finally, the Celsius exchange’s decision to freeze its customers’ cash sparked a wave of criticism and outrage from domestic crypto enthusiasts.
Decentralized exchanges have emerged as a solution to these issues, thanks to the evolution of smart contract technology and the development of blockchains. The DEXs market has risen dramatically to $100 billion in total locked (TVL) by November 2021, indicating the immense potential this invention offers since it was first envisaged in 2018 by Bancor Network.
Smart contract-based exchanges seek to offer liquidity to traders through a simple, efficient, and decentralized route. In exchange for a reward, they let users supply liquidity on the network (become market makers). What distinguishes DEXs from CEXs and other more conventional forms of asset trading? As Uniswap (the biggest and most popular decentralized exchange) demonstrates, users may trade around the clock, do not need to provide identification (KYC), and have complete control over their data. DEXes also allow yield farming, which helps keep the platform’s value stable.
DEXs aren’t exempt from the same issues as their counterparts. Only ERC20-based tokens may be traded on Uniswap since it is a uni-chain platform (based only on Ethereum). In addition to rug-pulling, fraud and temporary loss, several DEXs face rug attempts daily. Since the first AMM was produced, little progress has been achieved in the sector regarding innovation.
Several blockchain initiatives are trying to revolutionize the decentralized trading business, and one is Oraichain, an AI-powered blockchain. OraiDEX, its decentralized exchange, is one of them. Multi-chain operability, special staking incentives, and introducing a new CW20-compatible governance and utility token, ORAIX, through an exchange fair listing are all features in the DEX utilizing CosmWasm smart contracts.
OraiDEX’s meta-staking mechanism for ORAIX and ORAI token holders who delegate ORAI tokens on Oraichain and then stake ORAIX on OraiDEX is a unique feature of the exchange. Staking single CW20 assets like $ATOM, $USDC, $OSMO, and $UST on the Oraichain Mainnet will also generate incentives through OraiDEX’s liquidity mining, reducing the danger of temporary loss. Token airdrops and revenue-sharing perks are also available to $ORAIX delegates who invest their tokens.
The volatility risk of cryptocurrency prices may be reduced using DEX risk-managed investing methods when staking. Decentralized exchange Hyperdex has three “cube strategic investments” that enable investors to stake in high-, medium-, or low-risk staking pools.
For a short time, investors using the fixed-income approach may expect a predictable return on their stablecoin and crypto-asset investments. Using Algo Trading cubes, users may make a variable return on their crypto assets with a reasonable level of risk. For Hyperdex’s main product, the Race Trading cube, DeFi members may take risky bets on their crypto assets using the Race Trading cube.
Decentralized exchanges provide similar services to centralized ones but with the added benefits of decentralization, trust, and anonymity. As a result, financial goods are more widely available to everyone since the technology may spread across international boundaries and operate without regulation.
The sector is still in its infancy, and there is still a long way to go before it reaches its full potential. Despite this, the current incentives and advantages over CEXs might lead to DEXs volumes eating away at CEXs’ trading volumes in the near future.