Decentralized exchange: Difference between revisions
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#REDIRECT [[Decentralized_finance#Decentralized_exchanges]] |
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A '''decentralized exchange''' ('''DEX''') is a [[cryptocurrency exchange]] which operates in a [[Decentralization|decentralized]] way, i.e., without a central authority. Decentralized exchanges allow [[peer-to-peer]] trading of [[cryptocurrency|cryptocurrencies]].<ref name="wsj">{{Cite news |url=https://www.wsj.com/articles/why-cryptocurrency-exchange-hacks-keep-happening-1531656000 |title=Cryptocurrency Exchanges Are Getting Hacked Because It’s Easy |last=Russolillo |first=Steven |date=2018-07-16 |work=Wall Street Journal |access-date=2018-09-11 |last2=Jeong |first2=Eun-Young |language=en-US |issn=0099-9660}}</ref>[[File:Switcheo ledger.png|thumb|Ledger login on Switcheo Exchange|alt=]]Because users do not need to transfer their assets to the exchange, decentralized exchanges reduce the risk of theft from [[Cryptocurrency and security|hacking of exchanges]].<ref>{{Cite news |url=http://www.digitaljournal.com/business/big-investment-in-cryptocurrency-startup-altcoin-io/article/531556 |title=Big investment in cryptocurrency startup Altcoin.io |last=Sandle |first=Tim |date=2018-09-09 |work=Digital Journal |access-date=2018-09-11}}</ref><ref>{{Cite news |url=https://www.wsj.com/articles/alexis-ohanians-vc-firm-invests-2-1-million-in-crypto-trading-platform-1520365270 |title=Alexis Ohanian’s VC Firm Invests in Crypto Trading Platform |last=Castellanos |first=Sara |date=2018-03-06 |work=Wall Street Journal |access-date=2018-09-11 |language=en-US |issn=0099-9660}}</ref> Decentralized exchanges can also prevent price manipulation or faked trading volume through [[wash trade|wash trading]], and are more anonymous than exchanges which implement [[know your customer]] requirements. |
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There are some signs that decentralized exchanges have been suffering from low trading volumes and [[market liquidity]].<ref name="wsj" /> The 0x project, a protocol for building decentralized exchanges with interchangeable liquidity attempts to solve this issue.<ref>{{Cite news|url=https://techcrunch.com/2018/07/16/0x/|title=0x lets any app be the Craigslist of cryptocurrency|work=TechCrunch|access-date=2018-11-24|language=en-US}}</ref> |
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== Drawbacks == |
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Due to a lack of [[Know your customer|KYC]] process, and no way to revert a transaction, users are at a loss if they are ever hacked for their passwords or private keys.<ref>{{Cite web|url=https://www.bloomberg.com/news/articles/2018-01-30/record-crypto-heist-raises-the-appeal-of-a-new-type-of-exchange|title=Bloomberg - Record Crypto Heist Raises the Appeal of a New Type of Exchange|website=www.bloomberg.com|access-date=2018-11-17}}</ref> |
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== Degrees of Decentralization == |
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A decentralized exchange can still have centralized components, whereby some control of the exchange is still in the hands of a central authority. A notable example being IDEX blocking New York State users from placing orders on the platform.<ref name=":1">{{Cite tweet |user=Aurora_dao |number=1054917418621984768 |date = 23 Oct 2018 |title= #IDEX will begin blocking new orders from users with New York State IP addresses on Thursday, October 25th (6pm UTC). Cancels and withdrawals will remain active. }}</ref> |
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In July 2018, decentralized exchange Bancor was reportedly hacked and suffered a loss of $13.5M USD in assets before freezing funds.<ref name="bancor-freeze-loss">{{Cite web|url=https://www.zdnet.com/article/another-hack-rocks-cryptocurrency-trading-bancor-loses-23-5-million/|title=Another hack rocks cryptocurrency trading: Bancor loses $13.5 million|last=Osborne|first=Charlie|website=ZDNet|language=en|access-date=2018-12-13}}</ref> In a Tweet, [[Charlie Lee (computer scientist)|Charlie Lee]], the creator of [[Litecoin]] spoke out and claimed an exchange cannot be decentralized if it can lose or freeze customer funds.<ref>{{Cite web|url=https://techcrunch.com/2018/07/10/bancor-loses-23-5m/|title=The crypto world’s latest hack sees Bancor lose $23.5M|website=TechCrunch|language=en-US|access-date=2018-12-13}}</ref> |
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Operators of decentralized exchanges can face legal consequences from government regulators. One example being the founder of EtherDelta, who in November 2018 settled charges with the [[U.S. Securities and Exchange Commission]] over operating an unregistered securities exchange.<ref>{{Cite web|url=https://www.reuters.com/article/us-etherdelta-sec/sec-etherdelta-founder-settle-charges-over-operating-unregistered-exchange-idUSKBN1ND2CC|title=SEC, EtherDelta founder settle charges over operating unregistered exchange|website=Reuters|language=en-US|access-date=2018-06-05}}</ref> |
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== Reference == |
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{{Reflist|30em}} |
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{{Cryptocurrencies}} |
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[[Category:Digital currency exchanges]] |
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Latest revision as of 10:34, 7 May 2022
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