For a long time, the crypto world has been developing on the basis of centralized exchanges, those in which there is a central organization that controls the platform.
However, this structure has deviated from the original philosophy on which blockchain technology and its first-born and highest representative, Bitcoin, are based.
The original purpose behind Bitcoin is to increase decentralization, privacy, and security, something that the current crypto ecosystem, mainly based on centralized exchanges, doesn’t fully guarantee.
For this reason, nowadays more and more people are interested in decentralized exchanges and today, we’ll introduce you to some of the best decentralized exchange platforms out there.
If you don’t want to miss out on the benefits of this wonderful ecosystem, keep reading to the end.
What are decentralized exchanges?
A decentralized exchange or DEX is one in which transactions are carried out in a peer-to-peer (P2P) environment, that is, directly between two users on the blockchain.
There is no regulatory entity or intermediary in these transactions. These ecosystems are governed democratically by all their users, so there are fewer regulations and inconveniences when carrying out transactions.
However, and it must be said, if a user scams you since there is no regulatory entity, there is less chance that someone will respond to help you recover stolen money.
As a general rule, DEX have the following characteristics:
- As it’s a decentralized network of servers, there are fewer vulnerabilities to external attacks
- Private keys are under the user’s own control
- No need for verification procedures like KYC or AML
- You cannot trade in fiat currency – although this is changing
- In some cases, the volume of liquidity and transactions is lower
- Its operation may be a bit more complicated for users with little experience
Top 7 decentralized exchanges of 2021
The number of decentralized exchanges increases more and more as the months go by, but let’s be clear, that doesn’t mean that all that glitters is gold.
For that reason, we’ve made this list with only the best of the best among the current offer of exchanges on the internet. None is better than the other, each one has its unique characteristics, and the choice of one or the other platform will depend on your specific needs.
UniSwap is considered by many to be the most important decentralized exchange at the moment, especially when it comes to the DeFi environment. It’s a fully decentralized platform based on the Ethereum blockchain that stands out for its simplicity of use and great liquidity.
In UniSwap, users can vote to decide for the future of the platform using a governance model that is expressed through its native UNI token. You can exchange your UNI tokens for other Ethereum tokens within UniSwap, but also on other exchanges.
This entire ecosystem is sustained by a model based on a liquidity pool where the bids and offers of all users are accumulated in a single liquidity pool.
This model allows users who contribute to give liquidity to the platform to earn a commission of 0.30%, while users who exchange tokens pay that commission through a fee of 0.30%, thus providing a balance between supply and demand within the platform.
SushiSwap is a project that was born – with some controversy – from a division or “fork” of the UniSwap project, and it’s now its closest competitor with a value of $ 3.06 billion in collateral assets. Based on that, SushiSwap is very similar to UniSwap, although with some characteristics that make it unique.
At SushiSwap, you can earn interest for providing funds to a liquidity pool, for yield farming, but also for making loans with your cryptocurrencies (SUSHI tokens).
The main difference between UniSwap and SushiSwap is that, in the latter case, the profits return to the community, while in UniSwap, the profits return to the investors.
On the other hand, as with its competitor, in SushiSwap you don’t need to pass identity verification procedures, you earn or pay commissions/fees of 0.30% depending on what you do on the platform, and you can exchange your tokens in other exchanges.
PancakeSwap is another exchange in the same vein as UniSwap and SushiSwap, only this time based on the Binance Smart Chain (BSC) network and the BEP-20 tokens. It’s another Automated Market Maker (AMM) that provides liquidity pools that work automatically.
As in the first two exchanges, you, as a user, also have the power to decide for changes to the project by voting with your CAKE tokens.
The advantage of working over BSC is that since there is no congestion as in the Ethereum network, the fees are quite low in comparison, varying only between 0.04% and 0.2% for token swaps. On top of that, transactions only take an average of 5 seconds to complete.
On the other hand, 0.17% is distributed to liquidity providers together with LP (Liquidity Provider) tokens as a reward.
4.- 1Inch Exchange
1Inch Exchange is a very different platform than other well-known exchanges. It is a DEX aggregator that works by collecting information from other DEX and DeFi platforms to provide its users with the most convenient transaction possible. Basically, the exchange works as a bridge that connects users to carry out their transactions directly from their Ethereum wallets.
The mentioned feature works very well to lower fees and slippage, as well as allowing you to make exchanges between almost all types of ERC-20 tokens on the Ethereum network.
Regarding fees, the amount you pay will depend on the exchange involved in the transaction, while 1Inch doesn’t charge anything to withdraw your money.
Another point in favor of the exchange is that so far it has not received any type of cyberattack, and the fact that its users are who guard their funds, adds even more points to the security factor.
Perhaps, the main disadvantage of 1Inch is that its operation can be somewhat complex for users with little technical knowledge.
Bancor is a yield farming and token exchange platform that works as a liquidity protocol.
We’re talking about an exchange that manages close to $900 million in collateral assets that has its own BNT token, and that stands out for its ease of use and its innovative system to provide liquidity.
Unlike most AMMs in the industry, Bancor allows you greater flexibility in funding a liquidity pool.
In other similar exchanges, if a liquidity pool owns three different tokens – DAI, ETH, and BTC, for example – the liquidity providers are required to deposit all of these three different types of tokens.
In Bancor Network that doesn’t happen, since just by depositing an equivalent amount of a single token – DAI, for example – you can already participate in the pool.
Bancor allows you to exchange ERC-20 and EOS tokens with great ease between more than 10,000 pairs of tokens – in comparison, Binance only has almost 600 – without the need for a counterparty and keeping ownership of your private keys at all times.
Changelly is a DEX that works by integrating with other large platforms such as Binance, Poliniex, and Bittrex. In this way, Changelly is in charge of finding the best rate and trading pair for each transaction.
The platform is very easy to use and in a matter of about 5 minutes and a few clicks, you can exchange one cryptocurrency for another, either from their website or from their mobile app.
Changelly currently has an offering of more than 170 cryptocurrencies and fees of 0.5% for each transaction.
It’s important to add that among the different exchanges analyzed here, Changelly is the only one that supports payments with fiat currency by debit and credit card. This can be a plus if you start in the world of cryptocurrencies and don’t have tokens to exchange, but in this case, the fees go up a lot. The reason for this is that Changelly uses the services of third parties to process these card transactions.
Also, Changelly doesn’t store user funds on its platform but instead transfers them to the other exchanges with which it interacts, from where users will have to request their funds.
DyDx is a decentralized platform based on the Ethereum network and in which you can carry out trading, lending, and borrowing operations alike. DyDx started operations in 2017 and since then it has been growing at a more than acceptable pace.
This platform works through a dual system in which you can participate by providing liquidity for other users to request loans through the platform or carry out trading operations. Of course, the user can also trade or apply for loans, depending on their needs.
Trading fees at DyDx are quite low, ranging from 0.025% to 0.30% in a maker-taker scheme. Regarding the rates for other products they offer, the rates vary greatly – something usual in DeFi due to the liquidity issue – fluctuating between 0.3% or even exceeding 30% in some cases.
The platform is relatively easy to use and as it’s based on smart contracts audited by independent companies, it’s very secure. In this sense, it’s not necessary to register to use their services. In addition to this, DyDx doesn’t keep private keys or store user funds, so it’s necessary to connect a wallet.
Islamic perspective on decentralized exchanges
The main thing to consider when using decentralized exchanges is how you make your money. Many of these decentralized exchanges allow you to earn money by lending out your crypto as a loan and then you earn crypto off of the loan.
In Islam, one has to be careful not to “rent out money” as earning riba (usury or increase) on a loan is not permitted on currency/money.
However, there are different rulings on crypto with some scholars such as Dr. Mohamed Ali El Gari who holds the opinion that cryptocurrency is a currency and says that due to this, the rules of riba al buyu apply.
While other scholars such as Dr. Mohd Daud Baker, holds the opinion that cryptocurrencies are digital assets and are not currency; therefore the rules of riba al buyu do not apply.
Both scholars have sound proof for their positions.
Decentralized exchanges are growing in number and they certainly have a promising future insha’Allah.
The accessibility, independence, and security features that a good DEX platform can provide are very attractive factors for many people, especially those who live in developing countries.
However, it must be said, the world of DEX and DeFi has yet to catch up with the large centralized exchanges that dominate the crypto industry.
Our recommendation: have a varied portfolio between DEX and CEX and use each option according to what best suits your needs.
And in the end, Allah knows best.