- AMMs have truly been a zero to one innovation, offering a non-custodial, censorship-resistant solution to trading and liquidity pooling.
- DEX with necessary enhancements will continue to be the building block of DeFi application.
- With v3 new capability, uniswap still is the front runner.
What is DEX?
A decentralized exchange (better known as a DEX) is a peer-to-peer marketplace where transactions occur directly between crypto traders. DEXs fulfill one of crypto’s core possibilities: fostering financial transactions that aren’t officiated by banks, brokers, payment processors, or any other kind of intermediary.
- No fiat to crypto, only crypto to crypto
- Most are open-sourced, enable wider variaty of crypto
- Less counterparty risk
- Not user friendy, require own reaserch and heavy lifting
- Smart contract vurnerability
- Imperminant loss
- Capital Efficiency & Customizable AMM Curves: Bancor, DODO, Balancer, Deriswap, Uniswap
- On-Chain Market Makers & Orderbooks: Kyber, 0x, Serum, Raydium
- DEX Aggregators & Cross-chain Liquidity: 1inch, Matcha, THORchain
Concentrated liquidity is clearly the future of AMMs, and V3’s early success speaks to that. Uniswap has increased its DEX market share to 70%+ since its launch.
CEX vs DEX
What is liquidity pool?
A liquidity pool is a crowdsourced pool of cryptocurrencies or tokens locked in a smart contract that is used to facilitate trades between the assets on a decentralized exchange (DEX).
- When a user supplies a pool with liquidity, the provider is often rewarded with liquidity provider (LP) tokens.
- Liquidity pools in different protocols may use algorithms that differ slightly. (See formula chart in Key Player Section)
- Yield farming is making the process smarter