Best Decentralized Exchange (2024)

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INTRODUCTION

Decentralized exchanges are digital marketplaces which allow traders to buy and sell cryptocurrencies directly on a blockchain - offering self-custody, transparency, and access to a greater variety of crypto assets than would be available on a CEX alone. Some traders prefer to use them because they reduce exposure to risks like custody of user deposits and a lack of transparency associated with centralized exchanges. Probably the more common reasons are to gain access to tokens not available on centralized exchanges, and to avoid having to go through often-cumbersome centralized onboarding processes. That said, using decentralized exchanges requires a higher degree of crypto-familiarity and certain onboarding hurdles which must be overcome.

There are more than 1000 decentralized exchanges today, across many different blockchains. This might make choosing a DEX to use challenging for the beginner trader. In this article, we will look at the fundamental concepts around decentralized exchanges, as well as the criteria to consider when making an informed decision about where to trade crypto.

WHAT IS A DECENTRALIZED EXCHANGE?

A decentralized exchange (better known as a DEX) is a peer-to-peer digital marketplace that enables traders to buy and sell various cryptocurrencies without relinquishing custody of their funds to an external intermediary.

The key difference between a DEX versus a centralized exchange (CEX) like Coinbase is that DEXs operate natively on a blockchain, which introduces a new set of benefits and drawbacks which traders must take into consideration.

Transaction Fees - Unlike using a financial intermediary like a bank or brokerage firm, transactions on a blockchain are processed by a network of nodes known as validators, who must be in majority-agreement or consensus about the validity of a transaction. Distributing this responsibility of processing transactions across multiple entities as opposed to a single one is key to the decentralization of blockchains, though it also means that given that validators are responsible for verifying, ordering, and executing transactions, users must pay an additional transaction cost known as a gas fee for this computational effort.

Self-Custody - Users trade assets directly from a self-custodial wallet, which means they do not need to deposit any funds to the DEX itself. On one hand, this means traders do not have to trust that the exchange will not allocate their deposits elsewhere; on the other hand, it means traders must create a self-custodial wallet and transfer funds over to it before they can trade on a DEX, meaning they cannot enjoy the convenience of buying crypto with their credit or debit card as they can on Coinbase or Binance.

Code - Trading functions on a DEX are enforced by lines of code known as smart contracts, which are constructed on the premise that “Action X will execute if Condition Y is met”. This removes the need for intermediaries and ensures that no additional actions outside user-specified instructions will be executed. 

Visibility - Every action recorded on the blockchain is publicly observable, enabling users to observe the full contents of their transactions after execution. 

Anonymity - Blockchains preserve anonymity for users as they do not require any personal information or approval process to sign up. Instead, users set up a self-custodial wallet from which they trade crypto assets from

At their very core, all DEXs are simply sets of smart contracts programmed to interact with one another and emit specific outputs based on specific inputs, settling all transactions on one or more blockchains. Yet their implications are far more complex, as they represent a shift in the function of trading as they enable anyone to become a part of the trading protocol and be a beneficiary of trading activity and growth. Users can lend out their funds to be traded in exchange for earning fees resembling interest payments, or if a DEX has launched its own token, holders can receive a portion of the earned fees as part of a revenue share system.

WHY DO TRADERS USE DECENTRALIZED EXCHANGES?

Traders may wish to consider using a DEX to trade crypto assets if they are looking to avoid trusting a centralized intermediary with funds, want to access a greater variety of tokens to trade, wish to preserve their anonymity when trading, and value the ability to observe the contents of their transactions on-chain. 

It should be noted that a fair degree of facility with crypto is required to effectively trade on a DEX as there are multiple prerequisites involved, including acquiring crypto with fiat, setting up a self-custody wallet, and successfully transferring enough funds to the wallet to be able to trade and pay for gas fees. 

HOW TO CHOOSE THE BEST DEX?

There are a multitude of factors to consider when analyzing these blockchain-native digital marketplaces. Some criteria for selecting the best decentralized crypto exchange are:

• Liquidity: This refers to the amount of capital that has been lent out to the DEX as liquidity for trading. Traders seek DEXes with higher liquidity as they are far more likely to receive better pricing on their trades than on a low-liquidity DEX where trades can be impacted by slippage due to low liquidity. Blockchains and blockchain-based applications use a metric called Total Value Locked, or TVL, to measure liquidity.

• Volume: This refers to the USD value of crypto assets being traded on a DEX in a given period. Higher volume generally indicates greater trading activity on a particular DEX, though it should not necessarily be used as a definitive metric since volume can be inflated fairly easily, whether through trading bots, incentive programs for traders, or individuals seeking to qualify to receive a future airdrop on that DEX. Typically, the Total, 7 Day, and 24 Hour volume is measured.

• Fee %: This refers to the trading fees a DEX charges. Fees are typically fixed and clearly stated but can vary between DEXs. Traders often look for DEXs which charge lower trading fees to maximize their returns.

• Supported Blockchains: DEXes vary in the blockchains they support, and traders may want to trade on a particular blockchain because it has unique assets, lower transaction fees, or more liquidity, among other factors

• Security: Smart contract security has become an especially important factor for DEX users because of the size and frequency of DEX hacks. Traders will look at an exchange’s track record of secure operation and for security audits by third parties as signs of security. Many leading DEXes like Uniswap have also open-sourced their code, allowing anyone to observe and detect bugs.

• Decentralization: Not all decentralized exchanges are equally decentralized. It is also worth considering how decentralized a decentralized exchange is, though this can be tricky to determine. One may consider factors like smart contract upgradeability - how easily can the developers of the application make changes to the code. Oftentimes, decentralized exchanges will launch a native token and form a DAO to enable token holders to vote on various upgrades and changes to the platform in a decentralized manner.

TOP 10 DECENTRALIZED EXCHANGES (DEXES) IN THE CRYPTO MARKET

UNISWAP 🦄

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Launched in 2018, Uniswap was the first DEX to gain major adoption and is the model that most major DEXes are based on. Uniswap pioneered the Automated Market Maker (AMM) model, which facilitated price discovery based on market demand and available liquidity to trade. Uniswap was the first DEX to enable permissionless participation on both sides of the trade, meaning traders could swap supported assets with a simple and intuitive front-end, and anyone could provide liquidity to liquidity pools used for facilitating trade to earn trading fees. Uniswap has long been the number one decentralized exchange across a number of different metrics, including trading volume, liquidity, and active users.

• TVL: $4.628 Billion
• Total Volume: $2.37 Trillion
• Fee: Uniswap now charges a 0.15% fee on swaps directly from its frontend.
• Multi-chain support: Uniswap is available across 13 different networks.
• Security: Uniswap is open-source and has an active bug bounty program. Though there have been phishing attacks before, Uniswap’s smart contracts have not been exploited. Furthermore, the Uniswap DAO lets $UNI token holders vote on proposed changes to the protocol.

PANCAKESWAP 🥞

PancakeSwap launched in 2020 as a clone of Uniswap on BNB Chain. It is the top DEX on BNB Chain. Users can swap assets with low fees and provide liquidity on a user interface almost identical to Uniswap’s. Additionally, users can stake assets across various pools to earn yield. Many users choose PancakeSwap because of the relatively low transaction fees on BNB chain and the DEX’s high volume and liquidity.

• TVL: $1.619 Billion
• Total Volume: $641.406 Billion 
• Fee: 0.25% fee on swaps
• Multi-chain support: Pancakeswap is available across 9 different networks. 
• Security: PancakeSwap’s code is open-source, has been audited multiple times over its history, and has an ongoing bug bounty program. The DEX suffered a front-end ‘DNS Hijack’ back in 2021, though there have not been any reported smart contract exploits.

CURVE FINANCE 🦙

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Curve Finance is the second-largest DEX on Ethereum by TVL, launching 2 years after Uniswap in 2020. On Curve, users can swap assets and/or provide liquidity to earn fees, stake assets across various pools to earn additional yield, and participate in protocol governance by staking the native $CRV token. Originally, in V1, Curve only offered Stablecoin <> Stablecoin swaps, but has since integrated many other trading pairs in V2, otherwise known as CryptoSwap. One key distinction of Curve is that liquidity pools are structured to accommodate similar asset classes (like USDC/USDT or ETH/WETH) to provide users with a better trading experience through lower fees and slippage.

• TVL: $1.986 Billion
• Total Volume: $119.996 Billion‍
• Fee: 0.04% on swaps‍
• Multi-chain support: Curve can be accessed on 13 different chains today.‍
• Security: Curve is open-source and has undergone several different audits over its history, however, it still suffered from hacks previously, including a $2B reentrancy attack in 2023.

ORCA 🐳 

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Orca launched in 2021, and has emerged as the top DEX on the Solana network. On Orca, users can swap assets, and provide liquidity on a user-friendly interface, with low fees and fast transaction execution due to Solana’s performance. Similar to Uniswap, Orca utilizes an AMM model to facilitate price discovery based on available liquidity at a given time. 

• TVL: $194.09 Million
• Total Volume: $27.407 Billion
• Fee: Swap fees can vary from 0.01% to 2% based on the liquidity pool. 
• Multi-chain support: N/A - Orca is only available on Solana.
• Security: Orca’s code is open-source, there is an active bug bounty, multiple core team members are doxxed, and the protocol has reported zero hacks to this day.

SUN ☀️

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Sun launched in 2020, and is the largest and most popular DEX on the Tron network. Sun offers many of the features native to other DEXs, such as SunCurve for stablecoin liquidity pools, or directly on the Tron network. Users can swap assets, provide liquidity, earn yield by staking assets, and participate in governance with their token holdings directly from the Sun front-end.

• TVL: $435.43 Million 
• Total Volume: $77.566 Billion
• Fee: 0.3% on Sun Swap transactions
• Multi-chain support : N/A , Sun is only available on the Tron network. 
• Security: Sun reports that their smart contracts have been audited by SlowMist. There are no reported exploits for Sun DEX.

THORCHAIN ⚡

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THORChain launched in 2021, as a decentralized cross-chain exchange which also serves as its own blockchain network. Users can swap assets across different blockchains, provide liquidity to earn trading fees, and borrow and lend funds as well. THORChain enables transfers across Bitcoin, Ethereum, BSC, Avalanche, Cosmos Hub, Dogecoin, Bitcoin Cash, and Litecoin. Given the additional computational effort involved in swapping across different networks, THORChain charges an inbound, affiliate, swap and outbound fee.

• TVL: $787.8 Billion
• Total Volume: $58.2 Billion ‍
• Fee: Swap fees are variable and dependent on market activity and overall demand for an asset at a given time.‍
• Multi-chain support: THORChain supports transfers across 9 different chains. ‍
• Security: THORChain has an active ongoing bug bounty and has been audited multiple times. That said, the network has suffered multiple exploits in its past which have resulted in multi-million dollar losses, following which the team implemented multiple new security features and standards.

SUSHISWAP 🍣 

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SushiSwap originated as a Uniswap fork (a nearly identical codebase) intended to draw users away from Uniswap by providing nearly identical features but with higher rewards, otherwise known as a vampire attack. The protocol has since grown into its own niche, offering numerous functions for users paired with its distinct Japanese restaurant-themed branding to offer a unique user experience. Users can swap assets, provide liquidity, borrow and lend assets, as well as stake the native $SUSHI token to participate in governance.

• TVL: $313.44 Billion 
• Total Volume: $245.628 Billion ‍
• Fee: 0.3% swap fee‍
• Multi-chain support: SushiSwap is live across 32 different blockchains today. 
• Security: SushiSwap has an active bug bounty program, and has open-sourced a lot of its code. Nonetheless, SushiSwap has suffered multiple exploits, including one in 2023, though the protocol has ramped up security efforts in response, with a dedicated security team for responding to similar incidents in real-time.

SYNTHETIX 🔀

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Synthetix, launched in 2017, is one of the oldest DEXes. It was the first decentralized exchange to allow traders to access synthetic assets - tokens pegged to the price of not only cryptocurrencies, but also real-world assets like commodities and fiat currencies. Since then, the protocol has evolved to offer perpetuals trading and a handful of other on-chain financial instruments such as the sUSD stablecoin. It should be noted that there is no front-end for Synthetix itself - only supporting applications built on top of the protocol’s infrastructure, such as Kwenta and Lyra Finance.

• TVL: $633.15 Billion
• Total Volume: $45.33 Billion
• Fee: Trading fees vary by the specific Synthetix application, e.g. fees on Kwenta range from 0.1% to 0.6%.
• Multi-chain Support: Synthetix is supported on 2 blockchains, Ethereum and Optimism. 
• Security: Synthetix smart contracts have undergone numerous security audits , in addition to being open-sourced and having an active bug bounty. Nonetheless, the platform suffered a successful oracle manipulation attack in 2019.

OSMOSIS 🧪

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Similar to THORChain, Osmosis is a DEX which exists as its own blockchain network, or app-chain. This means users who wish to trade on Osmosis will need to purchase the native $OSMO token to pay for transaction fees. Users can swap assets, provide liquidity across various pools, stake assets to earn yield and participate in on-chain governance directly from the Osmosis front-end. Furthermore, Osmosis offers many customizable tools and features for creating various liquidity pools. One advantage of being structured as its own blockchain network is that transaction fees on Osmosis are notably lower than on other DEXs which live on major networks like Ethereum. Traders often come to Osmosis as there are many tokens listed that are not easily available elsewhere, like Celestia’s $TIA token.

• TVL: $194.08 Million 
• Total Volume: $25.757 Billion 
• Fee: Swap fees are 0.1% to 0.5% depending on the complexity of the transaction (trading across 1 network vs multiple)
• Multi-chain Support: Osmosis enables transfers across
• Security: Broadly speaking, Osmosis inherits many of the underlying security features of the Cosmos stack, such as IBC for cross-chain communication. That said, Osmosis has limited information regarding smart contract audits and has previously suffered a $5 million exploit.

BALANCER ⚖️ 

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Balancer launched in 2020 and is modelled after Curve Finance. Users can swap assets, provide liquidity, and stake the native token to participate in governance. Unlike the original Uniswap model which utilized a 50-50 asset ratio for liquidity pools, Balancer is known for its unique 80-20 liquidity pool model, built to provide deeper liquidity for traders, and to help liquidity providers mitigate impermanent loss and earn higher fees.

• TVL: $933.07 Million
• Total Volume: $67.5 Billion
• Fee: Swap fees can range from 0.0001% to 10% depending on pool configuration and available liquidity.
• Multi-chain Support: Balancer is available across 7 different blockchains.
• Security: Balancer has completed multiple audits in addition to an active bug bounty program. Balancer also has an emergency subdao in place to respond to any incidents affecting liquidity pools in real-time. Nonetheless, Balancer has been subject to exploits before, including a front-end attack in 2023, though smart contracts themselves were not exploited and losses were minimal.

THE RISKS AND CHALLENGES OF USING DECENTRALIZED EXCHANGES

DEX traders should be aware that there is no way in DeFi to revert transactions on a users’ behalf. Hence traders who use DEXes are typically familiar with on-chain trading fundamentals, as well as the common risks associated with crypto trading.

Let’s take a look at some of the DEX-specific risks that exist:

Onboarding and Navigation Difficulty

• UX remains a challenge for crypto onboarding; to trade on a decentralized exchange a user must first purchase cryptocurrency on a centralized exchange like Coinbase, set up a self-custodial wallet like Metamask, transfer funds from Coinbase to their Metamask, and connect their Metamask to the DEX website. However, for those who already have self-custody wallets that can be used in web applications, DEX onboarding is pretty easy
• Unlike with centralized exchange accounts, If you lose your pass key and seed phrase, you lose your funds. This is the double-edged sword of self-custody.

‍Frontrunning

• Transactions are submitted in a list or a block, to the underlying blockchain. The ordering of transactions matters because it determines the time at which a trade can be executed - if a transaction at the top of a block moves the price of an asset significantly, a transaction submitted after that transaction for the same asset will be impacted, likely for the worse (paying more to receive less value).
• Sophisticated actors can take advantage of information asymmetries to see a list of pending transactions and submit their own version with a higher gas fee to frontrun a trade and capture a profit from an unsuspecting trader. There are ways to avoid this, such as using private RPCs, though they require a higher degree of crypto familiarity and experience.

‍Gas Fees

• Gas fees are the costs paid per transaction to process that transaction on a blockchain. A network like Ethereum, which handles significantly more volume than other blockchain networks and has a more intrinsically costly transaction system, has much higher gas fees than most other blockchains. Networks like Solana and various Layer-2 blockchains provide cheaper and faster alternatives for processing transactions, though they may have less liquidity to trade with. Centralized exchanges generally do not process their trades on-chain, but rather on a centralized order book, so there are no gas fees (though there are still transaction fees charged by the exchange, which may be higher than gas fees).
  

Smart Contract Risk

• Blockchains are still a relatively new technology, and as a result many applications built on top of this novel tech face a constant threat of being hacked or manipulated. There have been many exploits of DEXes and DeFi protocols more generally, amounting to billions of dollars of stolen assets.
• Though many DEXs and other blockchain applications take steps to mitigate this risk including code audits and bug bounties, the risk remains. Traders typically exercise caution when trading on these digital marketplaces.

CONCLUSION

Decentralized exchanges are a pillar of blockchain ecosystems today. Operating natively on a blockchain enables greater transparency, and privacy, but it also entails important risks and other issues. Trading on a decentralized exchange is the first step towards being onboarded to the on-chain DeFi economy. Understanding how these digital marketplaces function and their respective pros and cons helps a user perform due diligence and select the best decentralized exchange for them.