Cryptocurrencies and decentralized technologies are booming. The numbers speak for themselves u2014 market capitalizations have gone through the roof, transaction volume has skyrocketed, and adoption from individuals, corporations, and governments has reached a global scale. n n Thanks to blockchain technology, we are moving toward a trustless economy, with no need of third parties to exchange goods. Yet todayu2019s digital currency exchanges are centralized. They have proven to be vulnerable to hacks, to react poorly to unusual blockchain events like hard forks, and often run with a high regulatory risk. Centralized exchanges keep their systems off-chain, meaning they operate as escrows for their clients, and transactions are not recorded on the blockchain. This leads to massive breaches of security and unsafe storage of information, funds, and private keys.
n Trading comes with risks, but traders should not face any other risks than those they are already willing tou00a0take.
n Blockchain entrepreneurs understand this, and some of them are working hard on what many believe will be the future of trading: decentralized exchanges. n Decentralized exchanges u2014 or DEXes u2014 aim to tackle the problems that impede centralized structures by building peer-to-peer marketplaces directly on the blockchain u2014 Ethereum mostly u2014 allowing traders to remain custodian of their funds. However, building a fully decentralized and efficient exchange remains today something of a utopia. Exchanges are centralized because it is the simplest way to proceed, and it is either too costly or technically complex to build fully decentralized platforms u2014 for now, at least. n Throwbacks and inefficiencies struggle to create advantages. Many semi-decentralized exchanges are coming into action. They are hybrid models between centralized and decentralized marketplaces, trying to meld the best of both worlds. There is an increasing number of such exhanges, following up on a need expressed by the crypto-community.
n This u201cstate of decentralized exchangesu201d begins with major cryptocurrency numbers and centralized exchanges, which currently monopolize the market. Decentralized exchanges are building the future of cryptocurrencies trading, and this u201cstateu201d aims to pave its way with its rough listing of projects in the making. We should pay them attention as they are shaping the way cryptocurrencies trading will operate tomorrow. n Disclaimer: I am part ofu00a0 VariabL u00a0(a derivatives trading platform on Ethereum) and u00a0Consensys u00a0(one of the largest global blockchain specialists). n I. Cryptocurrency Market Overview and the Flaws of Centralized Exchanges n 2017 Cryptocurrency market in numbersu00b9u00a0: n
+3400%*u00a0 = Market cap of cryptocurrencies is experiencing an exponential growth: From less than $18B to more than $600B in 2017. n x240u00a0 = Amount of transactions performed on the crypto market per dayu00a0 (Comparing 1st Janu2019 2017 and 1st Janu2019 2018) : Around $130M exchanged a day to more than $30B. n >170u00a0 = Number of cryptocurrency exchanges (live, with traffic), growing at an exponential pace + uncountable number of exchange projects.
n More than 99% of cryptocurrency transactions go through centralized exchanges. n II. Centralized exchanges n Letu2019s first define what centralized exchanges are: platforms and apps that enable traders to buy, sell and exchange cryptocurrencies against fiat currencies or cryptocurrencies themselves. They are marketplaces for tokens, and are essential to the ecosystem, since many of them enable payments with fiat currencies ie.
non-crypto holders to buy crypto with USD,EUR etc. n Among most well-known and trafficked centralized exchanges are Bithumb, Bitfinex, Bittrex, Poloniex, Kraken, GDAX, Coinbase, Gemini.
Hundreds already exist, but the goal here is not to focus on their number, but rather on their limitations and potential for improvement. n Centralized crypto-exchanges may soon become obsolete as they lose the opportunity to leverage blockchain technology to improve their capabilities and efficiency. n Localethereumu2019s official blogu00b2 has made a great overview of centralized exchangesu00b3, laying out various hacks and summing up the main problems linked to these platforms that include: n Insecurity, risk of loss and thefts due to their centralized functioning. They are legally accountable and a custodian of usersu2019 funds. 73% of exchanges take custody of user funds, while 23% let users control keysu2074.
They represent honeypots for hackers as they are responsible for billions of trades per day and store most of them on their servers.
n A lack ofu00a0liquidity: large orders struggle to be matched. Even at an all-time-high, volumes remain low (compared to traditional markets) n Au00a0fragmentedu00a0(not to say decentralized) market: divides the global liquidity into few main marketplaces. No clear market leader in terms of volumes. Increases the liquidity problem. n A high level ofu00a0risksu00a0for users due to potential performance issues, market manipulation, hardware failures, latency problems and many other inherent problems when it comes to dealing with large volumesu2026 n A lack of trust andu00a0transparency:u00a0actual costs and processes of trading are opaque and involve high trading costs, often higher than announced fees and higher delays due to peaks of demand badly managed. Plus, they can front-run orders, which is as illegal as doable.
n A lack ofu00a0educatedu00a0users: markets are flowed by pure speculators unaware of safe ways to deal with cryptocurrencies n III. Decentralized exchanges and open protocols n Due to the lack of security, transparency, and efficiency that centralized exchanges have demonstrated, a strong demand for decentralized exchanges have surfaced. Scores of new actors are tackling these problems and addressing an obvious need by the community. Projects like 0x, Ethfinex,u00a0 ShapeShift.io u00a0(not decentralized but not custodian) and EtherDelta have emerged and generated a strong interest. n u201c Decentralized exchanges promises two major benefits: Security & control and global marketplace u201d byu00a0 Michael Oved u00a0(founder ofu00a0 AirSwap Team , au00a0 ConsenSys Spoke) n One of the oldest projects in the field is EtherDelta, a platform with a simple user-interface and basic trading features (no margin trading), which has already gained sufficient traction to generate up to 25 million USD-equivalent of daily transactionsu2075.
n Definition n Decentralized exchange differ from centralized exchanges as they enable users to remain in control of their funds by operating their critical functions on the blockchain: they leverage the technology behind cryptocurrencies themselves to enable a safer and more transparent trading. It solves the main limitations faced by cryptocurrency markets (see above), since there is no single point of failure, aligning them with what has made the blockchain technology so powerful in the first place. n Most decentralized exchanges are not fully decentralized, but semi-decentralized (full decentralization is today more of an ideal, due to limitations listed hereunder). In most cases, servers (centralized) still host order books (among other features) butu00a0do not hold private keys.
n Another central aspect is that decentralized exchanges present the characteristics, benefits and limitations, of their underlying blockchain. n Main DEX Benefits n Trustless, which means that usersu2019 funds and personal data are safe.
n Security and privacy are well preserved. n Main DEX Limitations n Maintain the same scalability problems as the underlying blockchain.
n Most are not easily usable,u00a0struggle withu00a0liquidity, do not provide fiat payments etc. n (more details in a section below) n Decentralized Exchangeu00a0mapping: n Disclaimers: n This u201cstate of decentralized exchangesu201d may not be fully exhaustive and did not assess all of those projectsu2019 viability nor teamsu2019 legitimacy. However, an effort has been made towards making an exhaustive mapping. Abandoned or scammy projects might be included. It should be taken with a grain of salt and you should conduct your own due diligence before using or investing in any of those. n All the projects below are or contain decentralized exchanges functionalities in their global offers. Many are not limited to exchange services.
For the sake of that study, and since there are not (m)any fully decentralized and working exchanges, semi-decentralized exchange will be included. n Some exchanges offering advanced financial products such as futures or derivatives like dYdX or VariabL are voluntarily excluded of this benchmark since there is another article in the making for these ones. n The vast majority is in production/beta; this report aims to list all of them and assess their current state of development. I included their website and Medium accounts when available, which provide most of projectsu2019 updates. n AirSwap u00a0( Airswapu00a0blog ) n P2P decentralized exchange on Ethereum using the Swap protocolu00a0 (Live on February 1st 2018!) n Altcoin.io u00a0( Altcoin.io Exchange ) n Decentralized cryptocurrency exchange, powered by Atomic Swapsu00a0 (Beta on testnet) n Barterdex u00a0(byu00a0 Komodo Platform ) n Open source decentralized network doing atomic swapsu00a0 (in production) n Bancor Protocol u00a0( Bancor ) n Smart contract based token exchange protocolu00a0 (Live on the Ethereum MainNet) n Bisq u00a0(ex Bitsquare) n Crypto-fiat open-source exchange with a desktop application working via Tor to trade Bitcoinsu00a0 (Live) n Blocknet u00a0( Blocknet Team ) n Decentralized exchange enabling cryptocurrencies trading and fiat currency gateways through cross-chain atomic swaps and cross-chain data transfersu00a0 (In production) n Coinffeine : n Decentralized Bitcoin exchange with a u201cZero Trustu201d exchange algorithmu00a0 (Down) n Catalyst u00a0(byu00a0 Enigmau00a0Project ) n Investment platform for algorithmic/data-driven trading on crypto-assets without a custodianu00a0 (in alpha; simulation available) n Etherdelta n The cryptocurrencies fully decentralized exchange market leader for ERC-20 tokensu00a0 (Live) n Etherex n Open-source decentralized exchange built on Ethereumu00a0 (last update on April 2016) n Forkdelta n Community-driven open source and forked version of Etherdelta, uses the same orderbook and contract ( Live on the Ethereum MainNet ) n Gnosis Dutch Exchange u00a0(byu00a0 Gnosis ) n Decentralized exchange for ERC-20 tokens based on the Dutch auction principleu00a0 (in production) n Heat n Real-time asset-to-asset decentralized exchangeu00a0 (MainNet) n Herdius u00a0( Herdiusu00a0blog ) n Decentralized exchange focused on scalability and cross-chain interoperabilityu00a0 (ICO expected in Q1u20192018) n Hodl Hodl u00a0( Hodlu00a0Hodl ) n P2P cryptocurrency exchange on the Bitcoin Testnetu00a0 (Testnet) n IDEX u00a0(byu00a0 Aurorau00a0DAO ) n Decentralized exchange that provides instant order placement and execution, free order cancellation, and real-time order book updates.
( Live on the Ethereum MainNet ) n KyberNetwork u00a0(byu00a0 Loiu00a0Luu ) n Decentralized exchange and conversion of digital assets, api for payments and derivativesu00a0 (Demo on Ropsten) n Legolas u00a0( Legolasu00a0blog ) n Hybrid centralized/decentralized exchange targeting market makersu00a0 (In production, ICO Q1u20192018) n Loopring u00a0(byu00a0 Danielu00a0Wang ) n Decentralized Exchange for ERC20 and Open Protocol to serve multiple public blockchainsu00a0 (in production) n Lykke n Semi-decentralized exchange for cryptocurrencies and fiatsu00a0 (live, with a centralized model. Will switch to decentralized model in the future) n Mothership u00a0( Mothership blog ) n Decentralized exchangeu00a0 (in production, ICO raised) n NEX n Decentralized exchange on NEO with an off-chain matching engine including payment services.
( in production, trading platform launch expected in Q3u20192018) n Next.exchange n Decentralized exchange focused on ICOs with Crypto-pools and community tradingu00a0 (in production, launch expected in January 2018) n Nvo.io n Cross-platform modular / decentralized exchange using the Safenetwork for orders validationu00a0 (in production, launch expected Q1u20192018) n Oasis DEX u00a0(byu00a0 Makerdao ) n Decentralized Token Market u2014 on-chain market for all token assets in the Maker registryu00a0 (live on MainNet) n OmegaOne u00a0( Omegau00a0One ) n Decentralized trade execution platformu00a0 (a Consensys spoke, in production) n OpenANX n Open sourced and governed decentralized exchangeu00a0 (In production) n Raidex n Decentralized exchange with Raiden off-chain state channel technologyu00a0 (in production) n SingularX u00a0(byu00a0 SingularDTV ) n Decentralized peer reviewed trading platform for tokenized intellectual property and ERC-20 tokensu00a0 (Live Beta) n Stellar Distributed Exchange u00a0(byu00a0 Stellar ) n StellarTerm is an open source distributed exchange for the Stellar network.u00a0 (Live since 2015) n Streamity u00a0( Streamity ) n Semi-decentralized cryptocurrency exchange with fiat onrampsu00a0 (In production, ICO Q1u20192018) n Token Store n Ethereum token exchange built on smart contracts in a semi-decentralized wayu00a0 (Live on the Ethereum MainNet) n Waves u00a0( Wavesplatform ) n Crypto-platform for asset/custom token issuance, transfer and trading on the Waves blockchain, with centralised order matching and decentralised settlement.u00a0 (Live since June 2016) n Xchain ge ( xChainge: ) n Decentralized exchanges of crypto-assets ( by u00a0Counterparty , Open source platform on the Bitcoin blockchain) n Graphene/Bitshares Decentralized Exchanges: n Graphene is an Open Protocol, see more information below. n Bitshares n Decentralized exchange providing price stable cryptocurrencies and banking services on the blockchainu00a0 (Live since 2014) [Probably the oldest decentralized exchange sill working] n Blocktrades n Decentralized exchange acting as counterpartyu00a0 (Live) n BTSABC n Decentralized exchange powered by Bitshares and Graphene technology -in Chineseu00a0 (Beta) n CryptoBridge u00a0( CryptoBridge ) n Decentralized cryptocurrency exchange with multi-signature federated gateway network ( Live Beta ) n Cybex u00a0( Cybex Decentralized Exchange ) n Decentralized exchange system based on the Graphene/EOS Blockchainsu00a0 (Beta) n DEEX Exchange u00a0( Deexu00a0Ex ) n Decentralized exchange with blockchain traded funds and manyu00a0 (Private Beta) n GDEX n Offers a stack of decentralized financial services including exchange and banking on a blockchainu00a0 (Live) n OpenLedger u00a0( OpenLedger ) n Decentralized exchange powered by Bitshares and Graphene technologyu00a0 (Demo) n RuDEX n Decentralized exchange powered by Bitshares and Graphene technology u2014 in Russianu00a0 (Beta) n 0x Relayers u00a0( 0x ) n 0x is an Open Protocol, see definition below and readu00a0 https://relayer.
network u00a0for a great explanation of relayers. n Amadeus n Relayers for dApps looking for liquidity to exchange ERC20 tokensu00a0 (in production) n DDEX u00a0( DDEX ) n User-Friendly decentralized exchange for ERC20 tokensu00a0 (on MainNet) n Decent Ex u00a0( DecentEx ) n Decentralized exchange for Ethereum tokensu00a0 (on Kovan TestNet) n Dextroid n Low cost trading and user-friendly exchange on the blockchain.
u00a0 (on Kovan TestNet) n ERC dEX u00a0( ERC dEXu00a0blog ) n Decentralized Exchange with advanced financial tools, available on mobileu00a0 (Beta on the Ethereum MainNet) n Ethfinex u00a0( Ethfinex ) n Community-driven, decentralized trading platform for ERC20 Tokensu00a0 (live) n IDT Exchange u00a0(exu00a0 Kinu00a0Alpha ) n ERC20 decentralized exchangeu00a0 (first relayer to go on the MainNet) n Paradex ( Paradex ) n Exchange ERC20 tokens with a centralized matching strategyu00a0 (beta on the MainNet) n RadarRelay ( Radaru00a0Relay ) n 0x order book to find and trade any ERC20 token.u00a0 (live on the MainNet) n The Ocean X u00a0( The Oceanu00a0X ) n 0x relayer and liquidity pool for trading Ethereum-based tokenu00a0 (Beta) n IV. Open protocols for decentralized exchanges: n Definition n Open Protocols are setting up and running decentralized applications (dApps) on a common basis: some are designed especially for decentralized exchanges (ie.u00a0 0x ), others also seem suited (ie.
u00a0 Omise ). Both will be mentioned below. n They create synergies by allowing u201canyoneu201d to build their own services on top of them: it fosters innovation and is essential for native dApps to interact with each other. For decentralized exchanges, open protocols present the benefits of creating common pools of liquidity by allowing any project built on top to interact with each others.
n 0x u00a0( 0x ) n Open protocol for decentralized exchange on the Ethereum blockchain (live withu00a0 dozens of relayers, dApps on open protocols/projects built ) n OpenRelay n Open source relay for the 0x protocol n Lendroid n Open Protocol for Decentralized Lending that Enables Margin Trading and Short Selling of ERC20 Tokens n Enigma Protocol u00a0( Enigmau00a0Project ) n Decentralized exchange protocol supporting cross-chain atomic swaps, providing an open infrastructure and trading tools n Graphene u00a0(by Bitshares) n A software platform for deploying decentralized ledgers. Not specifically developed for decentralized exchanges. n OmiseGo u00a0(byu00a0 Omise ) n Digital Wallets, P2P exchange & Payments (fiats&cryptos) protocol. n Snowglobe u00a0(byu00a0 Alex Wearn , IDEX & Aurorau00a0DAO) n Fully-decentralized exchange protocol; designed for high-performance, EVM-compatible, decentralized childchain exchanges n Swap Protocol u00a0(byu00a0 AirSwapu00a0Team ) n Peer-to-peer protocol for trading Ethereum tokens, without orderbooks ( to be open in the future) n V.
What May Slow Down the Adoption of Decentralized Exchanges? n Security benefits, by allowing users to remain custodian of their funds, seem obvious and emphasized by all these hacks stories. So why everyone is not using them? n Some aspects are slowing down their adoption: Education and Technology. n Education n Users are not aware of: n Drawbacksu00a0and security issues of Centralized Exchanges n Securityu00a0measures to undertake (how to manage private keys etc.) since it is usersu2019 responsibility n Existenceu00a0of Decentralized Exchanges n Advantagesu00a0of Decentralized Exchanges n Technology n Usability: DEX are not user-friendly enoughu00a0 (very solvable problem, linked to early stages of projects) n Scalability: Possible blockchain bloat with ethereum network congestion and scaling pressure (with Token sales and a slow gas price adaptationu2026) n Speed: Transactions take time to be validated on blockchains n Cost: There is a potential high costs per trade n Liquidity: Chicken and the egg problem.
Traders do not join because traders are not already on the platform to match their orders; getting liquidity through a large adoption by the ecosystem is a long process. n Full decentralization: Some services have to remain off-chain and have to suffer from limitations of centralized infrastructures (ie.u00a0 onchain orderbook are expensive not efficient enough) n Front-running risk: miners can preview transactions, since they validate them, and can have consequences on any DEX (market manipulation) n Interoperability: need for cross-chain exchanges, and more blockchains/dapps interoperability for decentralized platforms to interact with each others. n Accessibility: Need for fiat integrations and stable tokens for lower volatility.
n On the matter, Kyberu2019s chief executive and co-founder,u00a0 Loi Luu u00a0stated: n u201ccentralized exchanges are potentially unable to handle large volumes of users, touting decentralized trading platforms as a better alternative. However, decentralized exchanges are not as user-friendly as centralized options, and may not have the funds to support mass trading due to small numbers of users.
u201du2076 n Conclusion n 99% of cryptocurrency transactions still go through centralized exchanges; this trend is expected to be reversed in the coming years. Switching to decentralized exchanges is necessary for cryptocurrency users to exploit their full potential, aligning with the decentralized nature of blockchain itself.
Education is arriving, and most technological hurdles we face today will probably be overcome very soon. n Differences between projectsu2019 value propositions are hard to spot in this field, and most of them will probably not exist in a close future. However, the trend towards decentralized exchanges is clearly evident. n Centralized exchanges will shift toward decentralized technologies sooner rather than later, but improvements have to come from both sides.
Users to learn how to protect themselves, and platforms must provide better security tools, as well as education around common issues and best practices. n u201cUltimately, I believe that centralized and decentralized exchanges will co-exist as they each provide their own unique benefits,u201d saysu00a0 Linda Xie , who sums up the situation pretty well (talking about 0x).
u00a0 Will Warren u00a0(0x Co-Founder) goes even one step further by stating that u201ccentralized exchanges will continue to play a critical role in the cryptocurrency ecosystem, because they offer fiat on/off-ramps.u201d This is one function that fully decentralized exchanges, by definition, do not allow.
n If some factors are slowing down adoption, the above-mentioned open protocols (for decentralized exchanges) are fostering development by lowering entry barriers to their implementation and adoption. 0x is probably among the best projects working on the matter. However, even the 0x protocol may suffer from problems like efficiency and scalability, which still represent massive hurdles for the whole blockchain, Ethereum and exchange ecosystem. Solutions in the making, such as State Channels, or Sharding/Plasma, will allow scaling, albeit with certain sacrifices. n From a wider perspective, decentralized exchange adoption will follow the adoption of the (Ethereum) blockchain itself, alongside better educated users and technological breakthroughs. As mentioned, centralized/decentralized hybrid models will most likely get their break first. Fully decentralized exchanges remain an ideal, towards which most of those projects are aiming.
n Some questions remain: does everyone want to take care of their own private keys? Probably not, but they should at least have the choice.
Friction for new users switching from centralized exchanges to decentralized ones also remain a big hurdle; even the process of switching represents a considerable effort for most usersu2026 n Is the switch is going to happen any time soon? People likeu00a0 Vinny Lingham (Civic) say that some centralized exchanges will soon close, and think this will accelerate the adoption of decentralized exchanges. n If the causes and triggers are matters of debate, we can hardly argue that decentralized exchanges are and will continue to grow as a hot topic of 2018 and potentially an essential pillar of the blockchain ecosystem. n n n n n Special thanks tou00a0 Will Warren u00a0(0x), u00a0Michael Oved u00a0(AirSwap), Jemayel Khawaja (Consensys) and my team ( VariabL ) for their time and support on making this article a reality. n Footnotes: n https://coinmarketcap.com n https://localethereum.com/ u00a0belongs to another type of cryptocurrencies marketplaces not mentioned here but also trending: local P2P token market places.
Other examples:u00a0 https://localbitcoins.com/fr/ u00a0oru00a0 Dether n https://blog.
localethereum.com/centralised-exchanges-are-terrible-at-holding-your-money/ . More hack stories hacks stories:u00a0 https://bitcointalk.org/index.
php?topic=576337 n u201c GLOBAL CRYPTOCURRENCY BENCHMARKING STUDY u201d Dr Garrick Hileman & Michel Rauchs (2017) n https://coinmarketcap.com/exchanges/etherdelta/ n Loi Luu (Kyber Network):u00a0 https://www.coindesk.com/uc-berkeley-kybernetwork-partner-for-decentralized-exchange-research/ n n n
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