Facebook pixel

Decentralized Exchange Comparison

Over the past five years crypto's popularity has skyrocketed, along with the price of many coins and tokens. Bitcoin and other cryptocurrencies were suddenly introduced to a much larger group than had previously been reached. The only problem? The ecosystem of places to buy cryptocurrency was severely limited. With this increased demand, there had to be a tool or service that made cryptocurrency widely available for purchase and sale.

Some of the earliest large exchanges, such as Coinbase, Gemini, and Binance took on this task and quickly became leaders in the field, becoming the most popular exchanges on the web. However, people identified some key issues that could be addressed in order to improve exchanges. For the first time, decentralized exchanges that were governed by smart contracts instead of administrators started to emerge.

Centralized Exchanges vs. Decentralized Exchanges

Coinbase logo on a key

The main difference between centralized and decentralized exchanges is who is in control of the funds. Decentralized exchanges use their own private keys, giving users sole control over their cryptocurrency. However, if you lose your password or private keys, you will not be able to recover your cryptocurrency.

Centralized exchanges, like Coinbase, will manage your private keys for you. While this provides recourse if you are ever locked out of your account, it also leaves open a slight possibility that your funds can be stolen via a hack. This has occurred in the early days of crypto (see: Mt. Gox), and increased regulation of centralized crypto exchanges, including the FDIC insuring some of the funds as they do with banks. While steps have been made to avoid potential catastrophic hacks, many have decided to use decentralized exchanges.

Instead of relying on a central server, a decentralized exchange is a set of open-source smart contracts that can be audited by anyone. This is in stark contrast to the proprietary nature of centralized exchanges that are controlled by one business or organization. While centralized exchanges use order books to facilitate peer-to-peer trades, this centralized element cannot be present in decentralized exchanges. Sellers place their funds in a liquidity pool to make trades as opposed to trading on a peer-to-peer basis.

Additionally, many centralized exchanges have a limited selection when it comes to cryptocurrencies and tokens. Often users realize it's easier to purchase crypto with fiat using a centralized exchange, they take the purchased coin (often bitcoin or ether) to a decentralized exchange that has more tokens available for trade.

The freedom and benefits of decentralized exchanges have taken the crypto world by storm. So much of the origins of crypto lie in the ideal of users controlling their own funds. This paired with the fact that centralized exchanges can be shut down has naturally led enthusiasts towards their decentralized counterparts. With the popularity of decentralized exchanges increasing, users are left with a new question. What decentralized exchange is the best? Recently there has been competition to recruit users to use specific DEX's, with each offering unique features and even rewards.


Illustration of the uniswap unicorn

One of the most popular exchanges that has emerged is Uniswap. Often known as the first DeFi exchange, the Ethereum-based exchange already has a proven track record of reliability.

In order to encourage use of their platform, Uniswap eventually launched the UNI token which provides rewards for users of the exchange. Users originally received UNI via airdrop based on previous activity and can continue to receive the token by simply continuing to use the platform for trades, much like the centralized exchange Binance does with their own token (BNB). Basically, these tokens are rewarded in order to incentivize trade or to provide liquidity on the platform. However, in a DEX with no central governance, the UNI token can be used as a voting mechanism if users decide to propose a network change.


Illustration of a piece of sushi

Remember when we talked about DEX's having open-source code? Well, what is preventing any other project from coming along, copying the network structure almost exactly, and adding one or two features? The answer is nothing prevents this, in fact, it routinely happens with open-source crypto projects. And that's exactly how SushiSwap was created.

SushiSwap saw both the success that Uniswap was having, along with the fact that they had not incorporated the UNI token as of this project's launch. They basically took Uniswap's code, forked it, and added a few features. While this might not seem like fair game, this is fairly normal for the development of decentralized products.

When this token was introduced, there was a significant migration of funds from Uniswap to SushiSwap, basically forcing Uniswap to create the UNI token. Some differences remain. Yield farming can no longer be done on Uniswap via the UNI token, but the SUSHI token is able to be used for this method. Uniswap users pay a slightly higher fee to liquidity providers, but that difference is mitigated by Sushi having an extra fee to reward all SUSHI holders.


Illustration of the 1inch unicorn

While the previous two DEX's are robust and thriving, 1Inch looked to take the concept of liquidity pools to the next level. Instead of using their own pool to facilitate trades, 1inch searches across several other DEX's for available liquidity, finding you the best exchange rate from the options searched.

1Inch offers their own Chi Gastoken that is used to help offset fees. Additionally, this option offers more tools for advanced yield farmers.


Illustration a pancake shaped like a bunny

While the decentralized exchanges we covered above are Ethereum-based, Pancake is based on the Binance chain. Just like SushiSwap, Pancake is just another clone of Uni, in this case for the Binance ecosystem.

Unlike some other exchanges, holders of the CAKE token can receive both fees and LP rewards, making it an extremely attractive mechanism for some passive crypto income.

Holders of CAKE are permitted to vote on network decisions and governance.

For more information on this topic, check out The Demystifying DeFi Course.

Get Involved

The best part of blockchain is that anyone can get involved!