Understanding the basics of decentralized exchanges

decentralized exchanges - Axo

As finance has increasingly become more complex over the centuries, markets shifted from peer-to-peer transactions to collecting and aggregating people’s trading intent onto a single market. This system has drastically increased network effects, lowered execution costs, and made exchanging goods simpler. However, these centralized trading platforms have a single point of control and are managed by a central authority, which executes the financial intent of its users.

Given the potential for abuses from the owners of these centralized platforms, there has been an increasing pushback from users of centralized markets. Users want their finances to be in their control instead of unaccountable third parties that exist out of necessity. This is why decentralized exchanges have gained significant traction in recent years. As the name suggests, decentralized exchanges are typically permissionless trading platforms built on decentralized networks rather than servers operated by a company. 

Decentralized exchanges eliminate the need for a central authority to manage trades by creating means of trading between users who don’t necessarily know each other. As a result, decentralized exchanges offer users more control over their assets and increased security and privacy, given that they allow users to operate under their own terms. 

One of the key differences between decentralized and centralized exchanges is how trades are executed. Centralized exchanges rely on a single authority to match buyers and sellers, whereas decentralized exchanges use programs known as smart contracts to execute trades. Smart contracts, in theory, eliminate the need for intermediaries by helping ensure that trades are executed fairly and transparently, according to predetermined conditions.

decentralized exchanges - Axo

The extent to which users can manage their assets is a key difference between platforms. On a centralized exchange, users must trust the exchange to hold and manage their assets, whereas, on a decentralized exchange, a user’s assets are typically held within a smart contract. 

Smart contracts, of course, still have potential vulnerabilities, as their programming scope is so broad. This is why a new kind of decentralized exchange is surfacing – one that allows users to retain full control over their assets until an order is executed.

A perfect example of this type of decentralized exchange platform is Axo

Axo is a hybrid between decentralized exchanges and centralized exchanges. On the one hand, Axo offers decentralized exchanges’ security and privacy benefits, as users hold their own assets, and trades are executed via smart contracts, which users can customize however they wish. On the other hand, Axo offers the convenience and speed of centralized exchanges, focusing on user experience and ease of use.

Axo is a unique DeFi trading platform that combines the benefits of decentralized and centralized exchanges, offering users the best of both worlds. So when trying to make a decision between decentralized exchanges and centralized exchanges, why choose?

Whether you’re a seasoned trader or just starting out, it’s worth considering a platform that does things differently and offers something unique. Axo is setting a new standard for trading.

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