How to Choose the Right DEX
Choosing which decentralized exchange (DEX) to use can be a difficult task for users who are new to the crypto space because of the large variety of options matched with the seemingly endless amount of scams and hoaxes that exists within web3.
However, choosing the right DEX can help users take their investing to the next level by interacting with on-chain protocols that give them access to wider varieties of tokens and liquidity pools that don’t normally exist on centralized exchange platforms such as Coinbase or Binance.
What is a Decentralized Exchange?
Before deciding which DEX to choose it is important to understand what it is and why users are compelled to use them. Put simply, a DEX is a token exchange platform that allows users to swap different crypto coins within the same network.
What stands out about these DEXs is that, while a team operates the protocol, there is no intermediary that facilitates transactions. Instead, everything is facilitated on-chain with no third parties involved. This can be helpful when looking to swap coins quickly because centralized exchanges can subject assets to holding periods which can ruin time-sensitive investment opportunities.
Factors to consider when picking a DEX
1. Liquidity
Liquidity is one of the most important factors when choosing a DEX because it represents the amount of cash invested into the platform, allowing traders to efficiently use the protocol to make swaps.
This becomes especially important for traders who are looking to make significantly large exchanges because smaller DEXs may not be able to handle the transaction.
Fortunately, identifying the amount of liquidity stored on a DEX protocol tends to be fairly easy as most mainstream DEX websites make that information publicly visible to instill trust from customers. If this information is hard to find or is missing, it might be best to consider other options.
2. Security
Another critical factor for choosing the correct DEX is by determining how secure the protocol is and whether or not it is safe. To do so, users can analyze the reputation of the team, identifying who they are and whether they have fully doxxed themselves or not.
Users can also look deeper into the smart contract code if they are familiar with computer science to analyze if there is anything suspicious involved. However, checking for third-party audits might be an easier thing to consider for those who are less computer-literate.
3. User interface and experience
The user interface is another component of a DEX that can make a difference to users. Getting started in cryptocurrency is generally seen as a challenging moment because of the steep learning curve, and DEXs that simplify the user experience can make a significant difference for investors.
4. Supported cryptocurrencies
One of the more obvious determining factors when choosing a DEX is the number of cryptocurrencies that are supported by the exchange. Within any given network, there are bound to be a large number of different options from mainstream tokens like Ethereum, to more risky assets such as Cosmos.
When using the listed cryptocurrencies as a reason to choose one DEX over another, it is helpful for traders to identify what their intended goal as an investor is first. Strategies that focus on long-term growth or short-term speculation can lead many traders towards niche coins that might not be available on every DEX.
5. Fees
Finally, it is important to always note the fees that a DEX requires when making a transaction on its protocol. When coupled with gas fees, these additional costs can cause investments to be at higher risk. This may lead investors to cheaper networks, such as Polygon over Ethereum, where fringe DEXs that are less reliable become more common.
