What are Decentralised Exchanges (DEX)?

The Cardano world is abuz recently with the launch of long awaited DEX’s in the Cardano ecosystem. Even if you don’t use any DEX, if you use Cardano, you may have noticed the congestion in the network since the launch of the most recent DEX last January 20 (Sundaeswap).

So what is a DEX anyway and should I be interested in it? Read on to find out.

Decentralised exchanges (DEX)

DEX stands for Decentralized Exchange. To understand what this means, we must first understand what an Exchange is. By definition, the word exchange means giving one item and getting another item in return. In the beginning, this was done directly by buyers and sellers. A chicken owner may offer eggs in exchange for milk from a cow owner. When currency was invented, the goods sold started to be exchanged for currency. As each country made their own currency, eventually people started exchanging one currency with another. It was not always easy to find people to exchange currency with so money changers arrived who charge a fee in exchange for their service of changing currencies. More currency types came in and other instruments like stocks, ETF’s and now cryptocurrencies started to be exchanged. This led to the birth of the first Exchanges where people can bring their financial instruments to sell in exchange for other financial instruments including currencies. The Exchange as the central body managing the transaction, charges a fee for all transactions.

Centralised Exchanges became a convenient way to change currencies. Unfortunately, these Exchanges became so large and amassed significant control over the market that they are able to set rates at levels that will greatly benefit themselves at the expense of their customers. Customers sometimes have no choice but to agree to the unfair rates as they don’t have any other options available. If a currency is not popular, centralised Exchanges may not sell them. If they want to stop operations, stop certain features or disable access for certain customers, Centralised Exchanges can do so at any time.

Decentralised exchanges aims to solve the above limitations by giving the following capabilities:

  • Letting buyers and sellers contact each other directly
  • Allowing sellers to sell currency that is not offered anywhere
  • Allows transactions to happen any time as it is always open

From the above, it sounds like DEX’s are the way to go. Just take note that they do have disadvantages over Centralized exchanges including:

  • Centralised exchanges are more agile and can easily add/remove features like trailing stop loss
  • DEX’s also charge fees for using their platform though this is usually lower than Centralised exchanges
  • DEX’s may be more complicated to use as there are additional steps that may be required

Overall though, I believe the advantages far outweigh the disadvantages of DEX’s. Just take note of the disadvantages when you use DEX’s.

So which DEX should I use?

As of this writing, Muesliswap and Sundaeswap have gone live on the Cardano network. Minswap has gone live on the Testnet. Checkout all of them and see which one you like. If this is your first time,I highly recommend doing test trades on their test networks before doing an actual trade using real money.

Can I use any wallet?

DEX’s requires smart contracts. Only certain wallets support smart contracts. As of this writing, hardware wallets are not supported so you need to use a software wallet. Commonly supported wallets include ccvault.Io, Nami and Gero wallets. To be safe, read the documentation of the DEX you are using to see which wallets they support.

Why is my transaction not going through?

First, remember not to retry your transaction to avoid double booking. If you entered everything correctly, it may be because your order has not been matched yet. Take note also that the network is currently congested because of the recent launch of Sundaeswap. It may take hours or even days for your transaction to go through. This is being addressed with network improvements in the future. In the meantime, please be patient and wait for your transaction to go through.

There you have it, a brief overview of what a DEX is. If you want us to go deeper into usage of a particular DEX, please drop us a note on our social media.

WISH Pool is the creator of Cardano SPOT Check, an online resource for Cardano Stake Pool Operators for maintaining their nodes. We are actively helping several Cardano communities and were a recipient of the IOG delegation in 2021 and are currently a recipient of the Cardano Foundation delegation in 2022. If you like this article, we greatly appreciate if you will delegate your ADA to WISH Pool. You will be earning interest rewards while indirectly helping the lives of disadvantaged children. This is because WISH Pool pledges to give at least 10% of its own profit to educational charities so that successful students can help get their families out of poverty. Let’s help grow the community together!

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