The Ultimate Beginner's Guide to Cryptocurrency Exchanges
But what if you don’t want to trust a centralized exchange with your funds? After all, cryptocurrency was founded on the principle of doing away with intermediaries. That’s where decentralized exchanges, or DEXs , come in.
What is a decentralized exchange?
Decentralized exchanges are one of the key building blocks of the decentralized finance ( DeFi ) ecosystem. A DEX is a platform where users can trade cryptocurrency directly with each other, without using a middleman. A traditional centralized exchange like Binance, for example, acts as a custodian on your behalf, with any trading taking place on Binance’s database, rather than directly on the blockchain itself.
While this is a more beginner-friendly way to trade, it has its downsides. For one thing, a centralized exchange presents a single point of failure, meaning that you could lose access to your funds if the exchange is hacked or faces server problems. Indeed, many centralized exchanges have struggled with downtime during periods of extreme volatility.
There's also the fact that many centralized exchanges require KYC authentication, which means you’ve got to provide proof of ID such as a driving license or passport (which, again, means trusting that the exchange won't be hacked, potentially exposing you to identity theft).and your identity details stolen
Coinbase, Binance Go Down Amid Crypto Crash, Highlighting Appeal of Decentralized Exchanges
In contrast, DEXs let you trade directly with other users, which means that assets are under your control at all times. The negatives are that trades can be more expensive and take longer, as they’re run on the blockchain.
Check out our dedicated article on decentralized exchanges for more info, or feel free to crack on with our round-up of the best offerings below.
Uniswap is the most widely used DEX on Ethereum. Image: Uniswap
What is Uniswap?
Uniswap is an Ethereum-based DEX that allows users to swap ERC-20 tokens. It’s one of the most popular platforms in the DeFi ecosystem, and aims to counteract one problem that’s associated with DEXs—a lack of liquidity.
It does this by allowing tokens to be swapped, which means the platform doesn’t have to rely on buyers and sellers creating liquidity (and all without charging platform fees in the process). Created in 2018 by former Siemens mechanical engineer Hayden Adams, the exchange has grown in popularity, reaching an average daily trading volume of $337 million as of June 2021.
What coins can I buy on it?
Uniswap has a total of over 5,500 tokens available for its users to trade across its regular and Pro exchange. These include the likes of AAVE , WBTC , ETH, DAI , and USDT. Notable omissions include COMP and Binance’s BNB, the latter of which is locked by Uniswap due to the exchange’s views (see tweet).
There’s a reason $BNB is the only token locked in Uniswap.
The ERC20 standard exists to allow DAPPs to interact with tokens in a predictable way. $BNB does not follow those rules, which puts users funds at risk.
— Uniswap Labs