Decentralized Exchanges are becoming more popular, and for a good reason. Because it would open up a larger range of use cases for both traders and the general public, this might be regarded as a significant step forward in the project’s development. PrivacySwap has recently ventured into a Decentralized Exchange, and here are its Pros and Cons.
Pros of DEXs
Many exchanges adhere to KYC/AML (Know Your Customer and Anti-Money Laundering) regulations. For regulatory purposes, individuals are frequently required to provide confirmation of identification and address.
This is an issue for some in terms of privacy and for others in terms of accessibility. What if you do not possess valid documents? What if the information somehow becomes public? Since DEXs do not require permission, no one verifies your identity. The only requirement is a cryptocurrency wallet.
When a central authority partially manages DEXs, certain legal conditions must be met. In some instances, if the order book is centralized, compliance must be maintained by the host.
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No counterparty risk
The absence of consumer funds is the primary advantage of decentralized cryptocurrency exchanges. Therefore, even catastrophic breaches such as the 2014 Mt. Gox hack will not put users’ cash at risk or expose sensitive personal data.
If there is sufficient supply and demand, tokens that aren’t listed on centralized exchanges can still be exchanged freely on DEXs.
Cons of DEXs
DEXs are far less user-friendly than traditional exchanges. Centralized systems facilitate trades in real-time that are unaffected by block times. CEXs offer users inexperienced with non-custodial cryptocurrency wallets a more forgiving environment. You can easily reset your password if you forget it. Nevertheless, if you lose your seed phrase, your funds will be irretrievably lost in cyberspace.
Trading volumes and liquidity
The trading volume on CEXs continues to eclipse that on DEXs. Possibly even more importantly, CEXs typically have better liquidity. Liquidity is the ease with which assets can be bought or sold at a reasonable price. In a highly liquid market, the difference between bids and asks is minimal, indicating intense competition between buyers and sellers. In an illiquid market, it will be more challenging to find someone willing to exchange the asset at a reasonable price.
DEXs are still very niche; therefore, supply and demand for the crypto assets you seek to exchange are not always present. You may be unable to locate the desired trading pairings, and even if you can, assets may not trade at a fair price.
If the network is busy or if you’re using an on-chain order book, fees may be higher on DEXs.
Also Read: How to: Calculate your crypto taxes
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