In-depth analysis of how DEX is helping to drive the decentralized Internet from four perspectives

The decentralized exchange (DEX) has grown significantly, fueled by the blockchain industry and the overall decentralized Internet drive.

The bull market has come so far that the development of DEX may have long been more than simply a bull market booster. The decentralized exchange (DEX) has grown considerably, fueled by the blockchain industry and the overall decentralized Internet drive. Going back to 2020, the development of DeFi changed industry trends, Uniswap launched v2, DEX aggregators 1inch Exchange, SushiSwap, PancakeSwap, Bancor v2 and other DEXs were released, which is the evolution of DEX as it is known today.

The competition between DEX and CEX is not just about technology, but more about economic models and high performance. Compared with CEX, DEX has relatively obvious security advantages and can significantly reduce various risks caused by human factors, however, the current performance of the underlying public chain severely restricts the development of DEX, resulting in a much lower user experience than CEX.

Due to the limitations of blockchain infrastructure, DEX is not yet a rival of centralized exchanges in many aspects. Based on data, we know that decentralized exchanges account for about 1-4% of total trading volume. As of March 2021, the total trading volume of the top 10 DEXs is significantly less than that of the top 10 CEXs, with ratios of $0.104 trillion and $1.44 trillion, respectively.

In-depth analysis of how DEX is helping to drive the decentralized Internet from four perspectives

Source: CoinGecko Quarterly Report Q1 2021

However, DEX has had a huge impact on blockchain development and the decentralized internet in 4 main ways.

  1. DEX Liquidity Empowers DeFi Development
    The growing demand for DEX is triggered by providing users with a level of security and privacy and a deeper level of integration across the DeFi industry, with a greater diversity of assets on offer.

While CEX exerts control over cryptocurrencies already live, often to avoid legal or security issues and to ensure maximum profitability, listing on DEX is entirely dependent on its community, and any user or project can create a pool of funds and provide liquidity to start trading. As a result, many cryptocurrencies and tokens with small market capitalizations are only available through DEX.

In-depth analysis of how DEX is helping to drive the decentralized Internet from four perspectives

Balancer Interface

For many cryptocurrency traders, DEX is the only opportunity to get into cottage coins and be able to discover promising projects for early investment. And for the DeFi platform, DEX is the only gateway to an audience.

Listing on DEX can give momentum to projects in their early stages, and project teams use the DEX liquidity pool as a way to incentivize holdings. The amount of liquidity in the liquidity pool also responds to investor signals, and they can close out their positions and sell at any time. the liquidity accumulated on DEX is still a fraction of the amount that CEX can provide, but the funding is more flexible.

  1. DEX-based farming returns
    DEX is one of the main components of DeFi, with Uniswap alone supporting over 200 DeFi trading pairs. the DEX native token represents half of the DeFi ecosystem market cap, and the revenue aggregator is largely based on DEX.
In-depth analysis of how DEX is helping to drive the decentralized Internet from four perspectives

Source: CoinGecko Quarterly Report Q1 2021

Farming revenue is generated by users injecting liquidity into DEX’s pool and then pledging LP tokens in the farm to earn their native tokens, while also earning transaction fees.

Liquidity mining is not limited to DEX, as some aggregators such as Beefy Finance support a single pool of funds and use lending agreements to mine more raw tokens. Another option is to do it on a lending agreement, where the platform provides liquidity allocation rewards for its pools.

These protocols were already in operation and known prior to the launch of the liquidity mining program, and liquidity mining based on Uniswap, Curve, and other platforms makes farming for revenue much easier.

  1. DEX Loads
    DEX aggregates a variety of features, for example, SushiSwap released its lending platform Kashi for margin trading, PancakeSwap released its NFT, and 1inch launched its farming program.

As the DEX platform increasingly meets the needs of traders, the network becomes overcrowded and the heavy load on the Ethernet network highlights the shortcomings, prompting development teams to come up with newer and scalable solutions with new features, with DEX creating more practical examples.

In early 2021, DEX set a new record for transaction volume. Amidst the high demand and load on the network, EtherGas fees rose by nearly 400%.

In-depth analysis of how DEX is helping to drive the decentralized Internet from four perspectives

The issues of scalability and high transaction fees are not new to the network. But this time, it has facilitated the development of Ethernet alternatives such as Layer 2 solutions and the Binance smart chain, chief among them PancakeSwap. PancakeSwap now processes more than 2 million transactions per day, which is more than the entire Ethernet network.

In-depth analysis of how DEX is helping to drive the decentralized Internet from four perspectives

Source: DappRadar

In response to competing blockchains eating into Ether’s market share, the Ether development team is back with a second layer of scaling solutions. The team is working on the rollout of Optimism, ZK, xDAI and Polygon. And here again it comes down to DEX. Uniswap and Synthetix have announced that their protocols will integrate the Optimism solution. Market sources say that many DeFi projects will also choose Optimism over other rollup solutions, just to maintain integration with larger projects and their mobility.

  1. DEX competition drives industry growth
    Uniswap still dominates half of DEX, accounting for more than 30% of total transactions. But to stay in the top 10 and compete with other network platforms and solutions, a lot of optimization improvements are needed.
In-depth analysis of how DEX is helping to drive the decentralized Internet from four perspectives

By design, all DEXs implement the same functionality to enable P2P exchange of tokens, however, in terms of strategic development, each platform has its own focus and unique features.

For example: SushiSwap focuses on the expansion of liquidity pools; Uniswap v3 prioritizes capital efficiency by introducing a liquidity feature that allows users to deposit funds at a custom price curve.

Conclusion
The development of DEX is driven by solving problems related to the DeFi industry as a whole, and the next milestone is the successful launch of a cross-chain DEX that enables interoperability. The development of DEX is linked to the progress of the blockchain industry as a whole, which has greatly influenced the development of the decentralized internet. dex has pushed the envelope for the entire ecosystem of DeFi services, including more decentralized applications, decentralized SaaS, facilitating asset tokenization and P2P model adoption.

Despite the progress, we are still in the early stages of Web3 development and adoption. Users still encounter many obstacles: it is difficult to interact with the protocol on cell phones mobile, and the pc version requires additional software support. There are also issues of scalability, operational costs, user experience and security. But this is common for emerging technologies and mechanisms, especially those that bring economic and financial value.

DEX is still an emerging concept, so their technology still needs to evolve. Although they are aimed at serving a specific purpose, they are not attractive to most cryptocurrency traders because they do not address most of their needs. In the long run, DEX will likely become more advantageous, but for now, they just lack some of the features that made centralized exchanges popular, such as liquidity, access to a range of cryptocurrency instruments, leverage, and a smooth user experience.

By design, all DEXs implement the same functionality to enable P2P exchange of tokens, however, in terms of strategic development, each platform has its own focus and unique features.

For example: SushiSwap focuses on the expansion of liquidity pools; Uniswap v3 prioritizes capital efficiency by introducing a liquidity feature that allows users to deposit funds at a custom price curve.

Conclusion
The development of DEX is driven by solving problems related to the DeFi industry as a whole, and the next milestone is the successful launch of a cross-chain DEX that enables interoperability. The development of DEX is linked to the progress of the blockchain industry as a whole, which has greatly influenced the development of the decentralized internet. dex has pushed the envelope for the entire ecosystem of DeFi services, including more decentralized applications, decentralized SaaS, facilitating asset tokenization and P2P model adoption.

Despite the progress, we are still in the early stages of Web3 development and adoption. Users still encounter many obstacles: it is difficult to interact with the protocol on cell phones mobile, and the pc version requires additional software support. There are also issues of scalability, operational costs, user experience and security. But this is common for emerging technologies and mechanisms, especially those that bring economic and financial value.

DEX is still an emerging concept, so their technology still needs to evolve. Although they are aimed at serving a specific purpose, they are not attractive to most cryptocurrency traders because they do not address most of their needs. In the long run, DEX will likely become more advantageous, but for now, they just lack some of the features that made centralized exchanges popular, such as liquidity, access to a range of cryptocurrency instruments, leverage, and a smooth user experience.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/in-depth-analysis-of-how-dex-is-helping-to-drive-the-decentralized-internet-from-four-perspectives/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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