If you’re aware of cryptocurrencies like Bitcoin or Ethereum you’ve likely heard of websites where you can buy them. Any exchange that allows you to purchase Bitcoin or Ethereum with fiat is currently operated by a central legal entity. While centralized exchanges offer a fiat on-ramp to cryptocurrency there are many downsides to working with a centralized exchange.
First, you have to trust a centralized exchange with properly storing your money and personal data. With one of blockchain’s core value propositions being decentralized trust, it’s tough for many people to swallow having to buy cryptocurrency through central entities. Do you want to give businesses a picture of your license? Do you trust them to protect your money? Not to mention there have been billions of dollars stolen from centralized exchanges by hackers.
Next, projects who want to list their tokens on centralized exchanges are commonly charged high listing fees to do so and that’s not all. Many exchanges require projects to maintain daily trading volumes or else they face delisting. Imagine paying an exchange 5–6 figures just for your digital asset to eventually be delisted for not meeting the trading volume requirements. Due to such problems with centralized exchanges, there has been a fast-growing movement towards decentralized finance and decentralized exchanges.
Why can’t decentralized exchanges provide fiat on-ramps to cryptocurrency? Well, a money transmitter license is required by regulators to transmit fiat for cryptocurrency. As the key focus of a decentralized exchange is to have no central entity operating the exchange, there is no entity to acquire a money transmitter license and meet regulations. Although traders are limited to swapping between cryptocurrencies on a decentralized exchange there are many benefits.
The core benefits of a decentralized exchange, or decentralization in general for that matter, include not having to trust a centralized entity with your data or currency. In addition, no account is needed to access decentralized exchanges, only a cryptocurrency wallet. Lastly, there is little risk of a decentralized exchange being taken down as its data is stored on the blockchain.
Although decentralized exchanges are a great idea they do have efficiency issues as each trade takes a long time to execute. Also, a network fee is required for every action such as canceling a trade so users can get frustrated. This has led to limited usage of decentralized exchanges and thus they don’t have much liquidity. However, a new type of exchange is changing the way people think of decentralized exchanges by allowing near-instant trades and liquidity on par with centralized exchanges. This exchange is actually a decentralized swap service called Uniswap.
Uniswap is an Ethereum-based protocol funded by an Ethereum Foundation Grant that automates liquidity provision and swapping of ETH and ERC-20 assets. UniswapDEX is the most user-friendly web interface available to interact with the Uniswap contracts. All of the features you’d expect on an exchange can be found on UniswapDEX.com. UniswapDEX’s features include token swaps, trading volume graphs, a wallet for your assets and even detailed insights into front-running statistics.
Finally, UniswapDEX is a great platform for new blockchain projects that don’t have the capital required to pay centralized exchanges high listing fees or the community to meet volume requirements. UniswapDEX has no listing fee, volume requirements or chance of delisting. Currently, only assets on the Ethereum blockchain can be swapped using Uniswap, but in the future, you can expect to be able to swap between different blockchains. Maybe one day you will even be able to directly purchase and sell cryptocurrencies on DEX’s with fiat.