Top decentralised exchanges 2022: The best five DEXs
In an increasingly busy marketplace, DEX offerings continue to multiply. Who leads the pack?
- What is a DEX?
- What makes for a good DEX?
- Exercising caution
- Uniswap: Ethereum’s leading light
- PancakeSwap: Binance’s bunny-themed big-hitter
- Curve Finance: The stablecoin option
- Quickswap: Polygon’s UNI killer?
- SushiSwap: more than a bite-sized DEX
- Bonus round: Notable contenders
What is a DEX?
The decentralised exchange (DEX) represents a new way to trade digital assets. Unlike the traditional centralised exchange (CEX), DEXs rely on user-generated liquidity pools to execute trades.
Underpinning the DEX is the automated market maker, a protocol that eliminates the need for a centralised intermediary, instead providing a peer-to-peer marketplace that adheres to the decentralised philosophy of at the heart of cryptocurrency.
Because DEXs are not supported by large, centralised pools of liquidity, they rely on the average user to act as a liquidity provider, who agrees to stake their crypto assets to a trading pair, with the promise of an annual percentage return (APR) on their staked value.
Even though DEXs only account for a small portion of total trading value of crypto assets, they are becoming increasingly popular. With that in mind, we decided to looking into the top decentralised exchanges. Though they represent only a fraction of the DEX platforms available, this list of decentralised exchanges presents you with options across different blockchains, taking into account trading and liquidity volumes, cutting-edge features and versatility.
Disclaimer: Currency.com is not affiliated with any of the platforms mentioned in this article. This coverage should be taken as a neutral informational resource rather than financial advice.
What makes for a good DEX?
Larry Pang, head of business development for the scalable blockchain solution IoTeX, talking to Currency.com about what features go into making a quality decentralised exchange (DEX), said: “I look for a simple user experience, high liquidity, and low fees,” pointing to QuickSwap on Polygon, mimo on IoTeX and Serum on Solana.
Pang said: “While Ethereum DEXs have the most liquidity and institutional interest, the fees are too high for retail, and sparked interest in other blockchains and DEXs.”
DEXs need to provide different things for different users, namely the liquidity providers (known as LPs) and traders. “LPs look for DEXs that offer incentives for depositing their assets and high trading volumes,” whereas “traders look for high liquidity and a variety of tokens”, Pang said.
DEX aggregators are becoming a go-to option among retail traders. Platforms such as 1inch compile the latest trading prices across major DEX platforms, allowing traders to select the best option using real-time data.
The benefits of DEX platforms also come with certain downsides that traders should be aware of. First, centralised exchanges (CEXs) generally provide higher levels of liquidity, making trades easier and less prone to slippage. Additionally, CEXs are generally more sophisticated with their tooling options, giving traders greater insight into price movements, volatility and other technical analyses.
Pang said: “A DEX is an open protocol, which means anyone can list their own cryptocurrency. This is both good and bad, as it requires users to verify and understand what they are purchasing on a DEX. The mantra ‘don't trust, verify’ holds true, especially for DEXs.”
The major centralised exchanges are often more diligent with their KYC (know your customer) and other regulatory measures, although this is a continuing subject of debate. Regardless, DEXs undeniably make it easier for poor-quality cryptocurrencies to trade on the open market.
Below, we have listed five popular decentralised exchanges, looking into their features and benefits. These are just five of many, and Currency.com is not affiliated with any of the platforms mentioned in this article. Traders and liquidity providers should always conduct their own independent due diligence before interacting with a cryptocurrency exchange, both in the centralised and decentralised spheres.
Uniswap: Ethereum’s leading light
Despite living on the costly Ethereum blockchain, Uniswap retains the crown as the largest DEX by market share. It upgraded from V2 to V3 in May 2021, over $809bn worth of trades has been executed on the platform, including a recent 24-hour high of $2.33bn; almost 5% of all cryptocurrency trades over the period.
Research published by Messari outlined considerable growth for Uniswap throughout 2021. The report stated: “Uniswap’s trading volume increased from $57.8bn in 2020 (when Uniswap first began facilitating trades in May 2020) to $681.1bn in 2021. A total of $91.8bn worth of trades occurred in Q1 (first quarter) while the protocol ended Q4 with $238.4bn of trading volume, marking a 160% increase.”
Uniswap’s native ERC-20 UNI token allows holders to vote on and pitch governance proposals. In a major December 2021 proposal, the community voted to deploy Uniswap on the Polygon blockchain. The proposal, pitched by Polygon itself, came to fruition on 22 December.
Could this development be the genesis of multichain compatibility for Uniswap? Judging by a recent blog post, the likely answer is yes. “We expect cross-chain experiences to play a large part in growth and user experience improvement this year,” the post stated.
PancakeSwap: Binance’s bunny-themed big-hitter
PancakeSwap is the premier DEX for tokens on the Binance Smart Chain (BSC). In one 30-day period early in 2022, PancakeSwap hosted 3.8 million users executing 50 million trades, making it one of the top decentralised exchanges by volume. The platform currently has more than $12bn staked across its liquidity pools.
Liquidity providers are incentivised through rewards sourced from the 0.25% trading fees, paid out in CAKE tokens. A portion of trading fees also goes towards a burning schedule, implemented as a deflationary mechanism (although, without a hard cap, CAKE is technically an inflationary cryptocurrency).
Despite having a lower market share in trading volume than Uniswap (a recent 24-hour reading of $846m equaled 1.79% of all crypto trades by value), PancakeSwap generates significantly more individual trades, due to its extremely high number of markets. Currently, PancakeSwap has 3,713 active trading markets, against Uniswap’s 646.
PancakeSwap’s large ecosystem of trading pairs inevitably increases the possibility of it hosting a high degree of scam coins, but the DEX‘s own smart contracts are tight, judging by CertiK’s security score of 94/100.
Curve Finance: The stablecoin option
At the opposite end of the aesthetic spectrum is Curve Finance, a DEX specifically designed for trading stablecoins. First established in January 2020, Curve’s ecosystem in home to 96 trading markets.
Operationally speaking, Curve (CRV) works in a similar fashion to other DEXs, through liquidity pools provided by LPs, who are incentivised through rewards generated from trading fees. Annual percentage returns fluctuate depending on daily trading volumes. On that note, a recent 24-hour trading volume of $124m constituted 0.26% of all crypto trades by value.
Curve has one major feature that others lack: A functioning multichain. Although predominantly based on Ethereum, Curve’s forks include BSC, Polygon, Fantom and Arbitrum. This multichain architecture significantly enhances trading options, but users should be cautious. Since Curve does not operate the bridges that make this multichain possible, “Curve cannot offer support for using bridges,” according to its white paper. Potential issues include insufficient liquidity, stuck funds and even hacking.
Curve functions as a decentralised autonomous organisation (DAO). Thus governance and business proposals are voted on by holders of Curve’s native token, the ERC-20 standard CRV. Past proposal have mostly dealt with the weighting system for LP payouts. CRV can also be locked up to receive staking rewards.
Quickswap: Polygon’s UNI killer?
Deployed on the Polygon blockchain in September 2020, Quickswap is a fork of the market-leading Uniswap DEX. Compared with Ethereum, Polygon is a faster and cheaper smart contract platform, making it an increasingly popular platform for high-throughput and gas-intensive DeFi protocols.
Quickswap is also the second-largest application across the entire Polygon network, boasting nearly 20,000 active users, 5,000 liquidity providers, 609 trading options and a recent 24-hour trading volume of $125m, or roughly 0.26% of all crypto trades on the day.
In a recent blog post, DeFi platform CelciusX announced a major partnership with Quickswap to provide a stable liquidity pool for the ADA and DOGE tokens. In total, $798.61m in liquidity is locked up across Quickswap’s pools, with USD Coin, WETH, WMATIC and SAND being some of the most liquid assets.
Quickswap’s APRs can be particularly generous; in January 2022 alone, it paid out $3.3m in LP rewards. A recent governance proposal to change the rewards structure was approved, the details of which can be read here.
SushiSwap: more than a bite-sized DEX
Another food-based name, SushiSwap was also forked from Ethereum, slightly before Quickswap in September 2020. Unlike Quickswap, SushiSwap remained on Ethereum. It has approximately $2.34bn in liquidity locked up in a total of 2,585 trading pairs. A recent 24-hour trading volume of $142m was 0.3% of all crypto trades.
So what are the advantages of SushiSwap over the far more popular Uniswap? Similar to Curve, SushiSwap deploys multichain technology to make trades possible across 14 different blockchains, including BSC, Polygon, Arbitrum, xDAI and Fantom.
SushiSwap’s DeFi ecosystem is far broader than its decentralised exchange, encompassing yield farms, borrowing and collateralisation products, and a lending protocol.
As a DAO, SushiSwap’s native SUSHI token allows holder to vote on governance proposals. In a flex of its powers, the community successfully voted on the hiring of their own chief technology officer, Matthew Lilley, in December 2021. In another shock, the community voted against a venture capital fundraising exercise, determining that “doing so would give unfair advantages to singular parties.”
Bonus round: Notable contenders
Although Shiba Inu (SHIB) was initially launched as a joke at the expense of Dogecoin, the remarkable popularity of the cryptocurrency prompted the ShibArmy to reassess its utility.
Pangolin, on the other hand, acts as a bridge between Avalanche and Ethereum. It has 134 active pools and has a recent 24-hour trading volume of $30.5m.
HoneySwap is a niche offering on the Gnosis Chain (previously xDAI), a sidechain of Ethereum. It is used to swap Gnosis Token, wrapped assets, Honey Token, Agave Token and other tokens active on Gnosis. Despite its limited utility, HoneySwap recently saw a trading volume of $241.1m.
There are many other DEX offering in the crypto space, with more constantly entering the market. Currency.com will keep you updated in the months ahead. This article used market data sourced from Coin Market Cap.
What are decentralised exchanges?
A decentralised exchange provides user-generated liquidity pools to execute cryptocurrency trades without an intermediary. Liquidity providers are incentivised through rewards paid out by a preset trading fee.
Are decentralised exchanges legal?
Though legal, decentralised exchanges are generally unregulated. Unlike some of the more trusted centralised exchanges, they do not adhere to KYC processes, meaning that many of the assets traded on the platforms could be malicious in nature. Extra due diligence is required when trading on a decentralised exchange.
Should I invest in decentralised exchanges?
While some decentralised exchange tokens have seen impressive gains in the past, they still remain highly volatile assets. Currency.com always recommends due diligence before investing in any crypto project. Be sure to read all available white papers, social media pages and official websites, while also seeking independent financial advice.