An incredible $330 million worth of eth has been traded in a somewhat peer to peer manner through smart contract based decentralized exchanges (dex), according to data by a blockchain analytics start-up Alethio.
Seven of them dominate at this stage. Idex remains the most popular with the latest easily available data showing close to 23,000 eth was exchanged on March 28th. While ◊1.1 million was exchanged on the first quarter of 2019.
That gives them a market share of 56%, with competition still hot in this growing space.
Kyber comes second. They handled about ◊270,000 in the first quarter, circa ◊3,000 a day, giving them a market share of 14%.
Uniswap and Bancor are almost tied with Uniswap just a bit ahead, both handling circa ◊200,000. One of the oldest, EtherDelta, comes fifth with ◊100,000.
Ethfinex and RadarRelay then follow with about ◊50,000 each, making it a total of circa ◊2 million eth in three months.
These dexes usually look similar to a centralized exchange with graphs, bids, sometime market orders, sometime stop losses, but the difference is the eth doesn’t leave your possession until after the order is executed.
You basically connect through MetaMask or Ledger or wherever else you hold your eth, with the dex then acting more of as a messaging service. You tell it however much you want to sell or buy, and then the actual transfer happens on the blockchain for the traded amount.
With a centralized exchange, in contrast, you have to hand over your eth to Changpeng Zhao of Binance or whoever else. Zhao is unlikely to run away with it and he hasn’t been hacked so far, but Mark Karpeles of MT Gox might be a different story.
That means dexes can be more secure provided they don’t have some bug somewhere, but that in turn means you have to be a lot more responsible for your own security.
As much of this is happening on-chain, there are transaction fees. So faking volumes, wash trading, and so on, would be quite expensive and a bit slower than in a centralized exchange because transactions have to confirm.
For some of these Exchanges, like EtherDelta, you don’t even need to talk to anyone to create a new market. You just click a button that creates a new smart contract with the token then tradable against eth.
That’s what we did in our testrun of a decentralized Initial Exchange Offering (IEO). The process was very smooth, but the User Interface (UI) leaves much to be desired.
While some other exchanges, like Idex, have a better interface but you need the permission of someone to list your token.
Most of these are still very new with plenty that can be improved, including the addition of state channels, second layers and so on, to make traders quicker and easier.
Some however are very convenient and in many ways more convenient than centralized exchanges, but that’s usually if they’re a decentralized broker, which can come with a price premium, rather than an actual exchange with bids and limit orders.
For the latter, bots are now scalping any inefficiency and in the process adding some liquidity, making this space a more interesting aspect of smart contracts because decentralized exchanges have been dreamed for years.
They’re now here and appear to be flourishing with about $100 million exchanging hands every month this year without counterpary risk in most cases.