A decentralized exchange (DEX) is a type of cryptocurrency exchange, which facilitates secure, trustless, peer-to-peer transactions. This is accomplished by replacing the centralized exchange authority (ex: Binance) with a blockchain-based automated market maker (AMM). Liquidity is provided by independent parties, who receive a portion of trading fees relative to their stake in a given liquidity pool -- New markets can be created by anyone with sufficient liquidity to fund its creation.
DEXs are entirely anonymous, efficient, difficult to manipulate, and free from counterparty risk.
With the ongoing proliferation of blockchain technology and rising investment demand for cryptocurrencies, the popularity of cryptocurrency exchanges has skyrocketed.
Underlying consumer Mentions of DEX protocols show a dramatic rise in 2021, currently up +419% YTD currently at an all-time high level (30d MA).
Much like their centralized competitors, individual DEX protocols offer governance tokens to create additional liquidity, assign voting rights, and provide rewards for investors. Uniswap ($UNI) is by far the largest decentralized trading protocol in terms of investment, with its ~$16B market cap placing it #13 overall.
Although UNI boasts the largest DEX brand, it has notable competition: PancakeSwap ($CAKE) and Sushiswap ($SUSHI) – Both protocols rank in the top 100 with $1B+ market caps.
Underlying investor chatter regarding these DEX protocols reveals an interesting trend: PancakeSwap is outperforming its larger peer.