The defi ecosystem has boomed over the past year or so, and with swaps the most fundamental of crypto activities, the need for a simple approach has never been clearer.
Crypto swap providers have simplified it somewhat by removing the complex process of logging in to multiple exchange accounts, and even some wallet providers have come onboard to make it easier.
These services are an important part of the defi ecosystem, and they serve well in their own sphere.
And thanks to the new generation of portfolio tracker apps such as Dexfolio, this process just became much simpler. But before we dive deeper, let’s take a look at how swaps work and how they fit into the blockchain universe.
Much like the bygone hobby of collectors swapping cards, crypto swaps occur when a trader wants to make a direct swap between trading pairs. An example would be if a trader was using the Ethereum network to trade ETH and wanted to add Bitcoin, they would need to make a swap.
Once upon a time, this process was complex, with many steps and multiple accounts, but crypto swap providers such as the Kyber Network, Changelly, and ChangeNow have made it easier by providing a centralized platform for swaps to take place.
Inexperienced traders have benefited from their services; many beginners find the choices between a centralized exchange, a decentralized exchange, and all the account options somewhat confusing.
It should be easy to conduct swaps and keep track of swap transactions, which is where Dexfolio’s mobile app is useful with its ability to keep track of multiple DEX swaps. It’s a great portfolio tracker and it’s free forever, check it out at https://www.dexfolio.org/blog-posts/dex-swaps-tracker
But what about centralized exchanges? Is it better to swap on those?
Both types of exchanges have their pros and cons. Let’s look at what that means for both.
- Large numbers of pairs available for swaps, therefore more opportunities to trade
- A more stable marketplace with high liquidity and many buyers and sellers to help reduce wild price fluctuations
- More regulation and compliance, therefore in theory, greater security
- Beginners benefit from greater user friendliness
- Easy to change between fiat currencies and crypto
- Vulnerable to attacks and a target for hackers
- Databases store user keys in most cases
- Subject to problems such as hardware failures, performance issues, and market manipulation
- Loopholes that allow fraud, poor demand management, and high fees
- A lack of trust and transparency
- A high number of inexperienced traders who are unaware of the best ways to stay safe
- Users fully control private keys because decentralized exchanges are trustless
- Security and privacy are upheld
- Low entry barriers
- Anyone can participate in the defi ecosystem due to the open protocols
- Lower trading fees sometimes on offer
- Users carry all the risk due to no central authority
- More difficult to use
- Interoperability with fiat currency is limited
- Not every exchange is a truly decentralized exchange
- Needs to be more users of decentralized exchanges to maintain liquidity and provide stability
Dexfolio’s app has been designed for decentralized exchanges, and the new generation of tracking apps is the way of the future for swaps among the decentralized exchanges.
Decentralized finance is here to stay despite the problems inherent in a brand-new industry. The stellar growth in decentralized exchanges over the past year or so shows that millions of users recognize their future potential. In addition, traders who are fed up with the problems associated with centralized exchanges are migrating to decentralized exchanges in large numbers.
The industry forecast is for the demand for defi to rise, especially as it offers greater cross-chain interoperability, comes up with a scaling solution for each scaling issue, and can provide better security.
Centralized exchanges may be custodial or non-custodial exchanges.
A custodial exchange retains a user’s private keys for their crypto assets. These are stored in the exchange database and the user can access them via a wallet and a simple authentication process.
This is a service offered to users and its purpose is to earn profits. Therefore, it is easy for users to deposit funds, manage digital assets, open an exchange account, and conduct other activities. Customer support is available and new features are regularly added to the lineup of services.
A non-custodial exchange does not retain users’ private keys and the exchange uses its own order book to process orders. There is limited user support and swapping between fiat currencies and cryptocurrencies is complex.
Things are a little different on decentralized exchanges.
Depending how their smart contracts operate, decentralized exchanges offer a couple of options.
In a currency-centric model such as Ethereum, its decentralized exchange operates with a single currency, meaning it can only escrow compatible currency or its own. In Ethereum’s case, it can only escrow ERC20 coins and their relatives because its smart contracts only allow for those.
The newer currency-neutral model removes the need for a coin that serves as a type of middle man by underpinning transactions. Instead, order books are managed and swaps occur between different native currencies by using the blockchain.
The decentralized exchanges each bring unique features to the table, but the top decentralized exchanges share some common features that users should look for in a decentralized exchange.
- On-chain liquidity protocols such as the Kyber network to facilitate fast peer-to-peer transactions
- Liquidity pools with a stable history
- Good security record
- Low trading fees
- Large number of liquidity providers
- Cross-chain interoperability options
- High trading volume
- A fully decentralized, trustless exchange
Dexfolio can help users choose wisely by tracking swaps data from Ethereum smart contracts, the Binance Smart Chain, and the Polygon exchange, with the capacity to easily onboard other decentralized exchanges. Easy swaps tracking is the way of the future.