The Rise of Decentralized Exchanges | Advantages & Challenges

5 min readMay 17, 2023

Decentralized exchanges (DEX) entered the crypto market in 2014 and made a massive jump in development thanks to the Automated Market Maker mechanism implementation. The appearance of the DEXs became a solution for some challenges that crypto users faced, such as the dilemma of privacy and third-party trust. DEXs allow users to stay anonymous, keep privacy, and own assets away from third parties. At the same time, DEXs, as a developing product, has vulnerable aspects of the operation that you, as a user, must consider.

Being aware of both sides of the coin regarding investments is important. Understanding all the possible risks and opportunities increases the chances of a successful user experience. Therefore we have prepared an overview of the core aspect of DEX to provide you with fundamental information. In this article, we will disclose DEX’s inherent advantages and challenges. At the end of the article, we’ll also discuss a future perspective of DEX development.

What is DEX? | General Information

Decentralized crypto exchanges are based on blockchain technology and provide users with peer-to-peer (P2P) token swaps. DEX platform allows access to digital assets and its services without an intermediary. Smart contracts ensure automatically executing trades on DEXs once predetermined features are met.

Advantages of DEXs

DEXs conquer new users daily thanks to their advantages over traditional banks and centralized exchanges. Here are the most spectacular benefits that directly depend on DEX technologies.

Immutability

Decentralized exchanges are built on a public blockchain to ensure trustlessness and immutability. Blockchain architecture is based on immutable blocks (they can’t be altered) that contain unique information about transactions that can be tracked and visible.

Trustlessness

DEX is a decentralized platform, meaning there is no single party or authority over the system. The consensus is achieved without users having to know or trust anything but the technology itself. Thanks to smart contracts and transparent blockchain technology, users can be sure that transactions are processed securely and honestly.

Anonymity

DEXs are much more anonymous than CEX and traditional finance institutions. Most DEXs do not require any KYC (Know Your Customer) data. Usually, operating on DEX is enough to connect your crypto wallet without disclosing your identity.

Transparency

DEXs facilitate peer-to-peer transactions, so users trade directly with each other via blockchain and smart contracts technology. All transactions are on a public ledger, which gives traders more certainty over their digital assets.

Access to Private Keys

Decentralized exchanges are non-custodial, which means they do not take custody of a user’s assets. Therefore the user is always in control of their crypto and private keys. It means that only the user is responsible for its funds, as DEX has no access to its wallet.

Challenges of DEXs | Overcome with Biswap

Despite the number of advantages, DEXs still have vulnerabilities and challenges. Let’s take a look at the most significant.

Liquidity

Liquidity is a crucial resource for DEX operations. All the trading on DEXs is executed within liquidity pools. Unlike centralized exchanges, which have extremely high trading volumes, DEXs often struggle to attract liquidity, making it difficult for traders to execute large trades.

Biswap DEX pays special attention and generous rewards to its liquidity providers. Provide liquidity to Biswap and get access to Farms and receive access to farms with BSW returns.
https://biswap.org/pool

User experience

One more common challenge facing DEXs is user experience. Some DEXs interfaces may be complex and difficult for new users to navigate. Also, users can notice that transactions take more time in comparison to CEX.

Biswap DEX constantly enhances its website and offers easy and intuitive interaction and website translation in 12 languages. When it comes to trading, users can experience fast and secure transactions. See for yourself.
https://biswap.org/swap

Regulation

The regulatory landscape for DEXs is still evolving. This uncertainty creates risk for investors, as there are no strict guidelines and frameworks that might protect investors and users in case of emergency situations.

Biswap DEX does not use any regulations; instead, it established Biswap SAFU. It is an emergency insurance fund for all our users. Starting from May 2021, 1% of all outstanding tokens have been allocated to a specific wallet to protect all our users and their funds in case of an emergency. All the funds are stored in a separate wallet.

Technical risks

DEX platforms operate through smart contracts, which can be vulnerable to coding errors. Such “weakness” allows scammers and hackers to attack the platform. Users may check the security audits before using the particular decentralized exchange.

CertiK, a leading blockchain security company, officially verifies the Biswap smart contracts. Biswap’s 93.37 security score proves that Biswap DEX has fundamental security and effective protection against hackers’ manipulations.

Future of DEXs

DEX has only or already existed for 10 years! During this time DEX industry evolved to a much higher level, and each year it gains a faster rhythm of development.

DEXs are scaling the crypto industry and attracting new users thanks to advantages before CEXs and solutions for modern issues, combining privacy and security. Therefore DEXs have the potential to keep popularity and further growth.

All the challenges we discussed earlier are actively overcome by better UX/UI design, security guarantees, and more attractive products to trade. So we may expect a significant improvement in the DEXs services. Moreover, thanks to AI technologies’ accessibility and successful cases, we may predict that such technologies will greatly impact DEX performance and entire cybersecurity.

Conclusion

Decentralized Exchanges underwent many changes and continue developing according to new challenges, market trends, and user needs. For the decade, DEXs attracted many users through competitive advantages such as immutability, transparency, trustlessness, and the ability to stay anonymous and keep their funds and keys from a third party.

As DEXs are a comparatively new exchange platform form, it still has challenges. Lack of liquidity, no regulation, non-user-friendly services, or vulnerable code are push factors that impact the DEX ecosystem. Despite all these challenges, reputable projects keep their operation on a high level and ensure their users with high security and quality services.