The rapid demise of FTX has accelerated the shift from centralized exchanges (CEXs) to decentralized exchanges (DEXs), but choosing the right DEX is no easy task. Along with the search for convenience and an intuitive user interface, crypto traders using DEXs face several challenges that can severely impact their trading activities.
The problem is that many traders are unaware of some of these challenges as some DEXs do not provide enough information to facilitate the trading process. This leaves many crypto traders vulnerable to multiple DEX risks, such as:
- Price Impact – The risk of the trade being executed at a worse price than quoted on DEXs using the Automated Market Maker (AMM) model is much greater than on CEXs. Since prices are determined by the ratio and value of tokens stored in liquidity pools, large transactions directly affect the liquidity of DEXs, forcing the AMM to execute at a different price than the original rate, which could be detrimental to traders. To avoid price impact, traders can split large trades into multiple parts, but that would mean paying more fees.
- Price slide – the difference between the quoted price and the execution price caused by MEV attacks and by general market volatility inherent in crypto assets. On CEXs, price slides are traditionally mitigated through the use of limit orders. Unfortunately, limit order functionality in DeFi is still more of a nice-to-have luxury than a standard.
- Poor Pricing – DEXs with low liquidity may make unfair bids due to poor pricing. AMMs rely on an arbitrage mechanism to keep prices consistent across all exchanges, but liquidity pools with fewer tokens and smaller volume may offer prices that differ from the rest of the market.
- Low liquidity of rare assets – the DEX market is very fragmented due to the multitude of different platforms. This is problematic for rare assets as liquidity is spread across multiple pools.
- Unclear Transaction Fees – Most DEXs are transparent about their standard fee, but there may be variable costs like gas fees that some DEX services don’t fully explain. Additionally, some DEXs offer better prices but with high slippage, while other exchanges offer poor prices with less slippage.
These challenges are compounded by the fact that the DEX market is fragmented and there are multiple options to choose from, which confuses crypto traders. A variety of options is good for the market, but when it comes to an emerging sector, it’s difficult to make an informed decision. Traders are often forced to trade on multiple DEXs in the hunt for better rates, but they need to give permission to numerous smart contracts.
How do DEX aggregators fix these problems?
DEX aggregators come to the rescue by solving most of the issues faced by independent DEXs, which can make the transition from CEX to DEX smoother.
DEX Aggregators are DeFi protocols that give crypto traders access to multiple trading pools from a single dashboard. They use complex algorithms that consider multiple factors to choose the best DEX for each specific token swap.
The lack of sufficient liquidity is one of the biggest problems DEXs face and aggregators are addressing this issue by giving traders access to multiple DEXs at the same time. By securing more liquidity, DEX aggregators offer better price discovery and reduce the risk of price slides. You can also split orders across multiple DEXs to further reduce slippage.
Thanks to DEX aggregators, crypto traders benefit from the best rates on independent trading pairs while dealing with a single application.
An example of a DEX aggregator is YetAnotherDeFi (YAD) – a multichain swap router that aggregates liquidity across six major blockchains including Ethereum, BSC, Avalanche, Polygon, Fantom and Optimism. With YAD, crypto traders can trade over 3,500 tokens at the most competitive rates with low transaction fees.
YAD relies on a decentralized and non-custodial swap technology that is censorship resistant and allows traders to move funds anywhere in the world without geographic or KYC restrictions. The platform prioritizes asset security by using transparent solutions based on well-established open source codes that anyone can examine.
YAD places great emphasis on user experience, making the trading process similar to that of a CEX. The aggregator offers two view modes: the simple mode for beginners and another mode for those who want to access all relevant information, including the price action and the optimal swap route, before executing a swap. YAD automatically finds the fastest route and offers the best rates.
The aggregator allows users to adjust the price floating tolerance and change the gas price to speed up certain transactions.
DEX aggregators support crypto adoption
DEX aggregators combine the key advantages of DEXs (e.g. trading without custody) with the level of liquidity of CEXs, thus offering the best trading experience in the crypto space.
The proliferation of hacking attacks and the misappropriation of centralized crypto services has negatively impacted crypto adoption. Evgeny Gaevoy, founder and CEO of crypto market maker Wintermute, told CNBC that the collapse of FTX delayed crypto asset launches by “a year or two.”
Although many investors are turning to DEXs, they don’t offer the same level of liquidity and convenience. DEX aggregators can reduce hesitation by offering the best of both worlds.
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