A Complete Guide to Decentralized Crypto Exchange

Worldwide, there is no person left who hasn’t heard about cryptocurrencies. With the increasing mania of modern-edge technologies, various technological innovations have created a space in people’s lives in less time than expected. Cryptocurrencies and crypto wallet apps are some of those innovations. There are some famous cryptocurrencies like Bitcoin, Ethereum, Dogecoin, etc. as well that are mostly used by businesses these days.

There are various reasons behind people’s interest in cryptocurrencies except for the existence of an efficient digital financial transaction’ tool. Businesses and individuals who use cryptocurrencies also require a crypto exchange for cryptocurrency trading in an easy way. For this purpose, they also hire a decentralized exchange development company to get efficient decentralized exchanges. These are used to do transactions on a peer-to-peer network without any help from a third party.

Do you want to know how acquiring these Defi development services benefits businesses? The following decentralized crypto exchange guide includes these all along with what is decentralized exchanges, their working, different types, market insights, development process, and estimated cost. Have a look below-          

What is Decentralized Crypto Exchange?

If we put it in simple words, a DEX or decentralized exchange is referred to as a crypto exchange enabling sellers or buyers to search for a suitable person to trade their crypto assets with no help from an intermediary. It doesn’t work like a centralized exchange as the DEX users are the only owners of their assets and no one else possesses custody of their holdings. This way, their assets are more secure, and the custody risk is also alleviated. DEX supports P2P or peer-to-peer cryptocurrency trading by bringing crypto sellers and buyers to one place.

In decentralized crypto exchanges, only users have control over their assets and the proprietorship of their private keys. These are some of the advantages of why these decentralized exchanges driving immense popularity in the current era. There are already several existing DEXs that are live and have a wide range of cryptos that can be used by enterprises.

How Decentralized Exchanges Work?

Primarily, decentralized exchanges or DEXs provide their services as arbitrators that enable sellers and buyers to connect. While reducing the need for a third-party & freedom from the government, decentralized exchanges offer additional security with the help of Blockchain protocols to protect the data of both parties.

Decentralization also prevents price and trading volume manipulation that help users to stay anonymous. Most of the decentralized crypto exchanges are organized this way:

• A base decentralized exchange protocol
• A database order book (On-Chain & Off-Chain)
• GUI (Graphical User Interface)
• APIs (Application Programming Interface) for functionality

Most businesses prefer to have a cryptocurrency exchange like Binance but before that, you need to know how decentralized exchanges work in detail. With cryptocurrency exchange platform development, third-party can be replaced with a Blockchain or distributed ledger. By taking the help of Blockchain in executing critical operations, the basic cryptocurrency technology helps to lessen the failure chances while allowing users to get control over assets. It refers to more transparent and safe crypto trading.    

Integrating smart contract development services into DEXs also processes market transactions via apportioning transactions’ operations to separate code but there, order fulfillment comes with different variations including multiple decentralization degrees. 

What are the different types of Decentralized Crypto Exchange?

While having decentralized finance development, businesses can go for three main types of decentralized exchanges comprising automated market makers (AMM), order book DEXs, and DEX aggregators. These all are used to enable users to trade cryptocurrencies or execute orders on chains directly with the other party via smart contracts. Also, these exchanges never take incarceration of users’ funds. Let’s look at the following types of DEXs:

1. Automated Market Makers (AMM)

Enterprises are considering choosing a top Blockchain development company to create the AMM system that relies on smart contracts. It is mainly designed to sort out the liquidity problem and was inspired partly by a paper on decentralized exchanges written by Ethereum co-founder Vitalik Buterin. It described the trade execution on the Blockchain with smart contracts holding tokens. AMMs are dependent on Blockchain-based services that extract data from exchanges and other platforms to decide the value of exchanged assets known as ‘Blockchain oracles’. As an alternative to similar buy and sell orders, the smart contracts here use pre-funded assets pools called liquidity pools.

These pools get funds from other users, and later they are eligible for the transaction fees and apply charges for trade execution on that pair. The liquidity suppliers require to deposit a similar price of assets in the trading pair to get high interest on the crypto stocks and this procedure is called liquidity mining. In any condition, if they try to deposit one more asset, the smart contract rests behind the pool and discards the transaction at that time.   

Traders are enabled for orders’ execution or to get interested securely and without permission by using liquidity pools. DEXs based on AMM are commonly categorized depending on the overall amount of collected funds in smart contracts. With the help of a top Defi development company, you can ensure to have a remarkable setback as Slippage in the AMM-based DEXs that appears owing to the lack of liquidity.

Slippage clearly represents the lack of liquidity directing to the buyer pay higher for orders than the market price. Here, larger orders tend to have higher slippage. On the other hand, liquidity providers also might have the possibility of ephemeral damage because of the volatility of one holding in trading pairs. Some of the instances of AMM DEXs are Balancer, Bancor, Curve, Sushi, and Uniswap.    

2. Order Book DEXs

Order book DEX serves as a multifaceted engine of the AMM liquidity pool and order book with the approval of users’ requests. It will help to sort out the issue relevant to the financial processes’ failure caused by the different order book depths. Famous order book DEXs include Gnosis protocol, Loopring, and IDEX. There are two types of order books, which are as follows-       

3. On-chain

The decentralized crypto exchange software that collects their open order data on the chains is called on-chain order book DEXs. It could be helpful for traders when it comes to leveraging their titles with the help of funds received from creditors on their platform.  

4. Off-chain

Off-chain order book decentralized exchange or DEX platforms collect the order books of the Blockchain systems. It facilitates transaction settlement on the Blockchain network only, hence, offers the importance of centralized crypto exchanges.

5. DEX Aggregators

DEX aggregators comprise multiple protocols and mechanisms to sort out the issues related to liquidity. All these programs aggregate liquidity essentially from numerous DEXs to reducing slippage on bulk orders and improving swap fees and token values while offering traders the best cost possible in less time. The primary goals of DEX aggregators are protecting users from differences in prices and alleviating the probability of unsuccessful transactions. Some famous instances of DEX aggregators are 1inch, Slingshot, and Matcha or Ox.     

Some DEX aggregators use liquidity via centralized platforms to deliver users an augmented experience. It is all done while remaining non-custodial by having assimilation with particular centralized exchanges.

Market Overview & Insights About Decentralized Crypto Exchange

Undoubtedly, decentralized finance development services are emerging as a non-comparable competition to other services. In 2014, the first decentralized exchange was launched, and it got famous because it was built In the Blockchain with no liquidity issue via AMM technology. However, the exciting truth about the increasing popularity of decentralized cryptocurrency exchange development services is that these facilitate you with the HTLCs (hashed time-locked contracts).

With time, we have witnessed that the number of unique addresses that have sold or purchased a Defi or decentralized finance asset across the world has increased. Below we have provided a graph presenting the related statistics from the year 2017 to 2022.  

Source:

Above, we can see the number of worldwide Defi users has grown by 300,000 since early 2022. This graph includes all the insights from Dec 2017 to July 2022 that depict that Defi is an emerging market, however, it is less than the combined market of cryptocurrencies.     

Top Existing Decentralized Crypto Exchanges

The ongoing guide to decentralized cryptocurrency exchange platform development is incomplete without talking about top decentralized crypto exchanges. Below we have defined some of the most popular DEXs considering liquidity, traffic flow, and trading volumes. To develop any of these, you can hire Blockchain developers to take their assistance and expertise. Have a look at the following:

What are the Advantages of Decentralized Crypto Exchange?

Building a DEX that too from a prominent decentralized cryptocurrency exchange development company is like turning on the advanced settings of an app.

1. Users’ Privacy

Users’ identity stays private or confidential at the time of exchanging one cryptocurrency with another on DEXs. Users don’t need to go through the conventional identification procedure called KYC (Know Your Customer) unlike centralized exchanges. KYC processes are also used to store traders’ personal data comprising their legal documents & details such as names, and photographs. It was the reason why DEXs have a larger user base with anonymity in comparison to centralized exchanges.

2. Token Accessibility

By having Defi token development services, businesses get facilitated with easy access to tokens, specifically those that are minted on the Blockchain platform they have been built on. Inspired by this, new projects would also do the token listing on the exchanges before listing them on the CEXs. With DEXs, users get enabled to trade new and vague cryptocurrencies that might be hard to exchange on any other exchange.      

3. Less Counterparty Risk

The counterparty risk occurs when a party engaged in a transaction doesn’t accomplish their side of the deal and escapes from the prescribed agreements. On the other side, the DEXs work without any third party or intermediary and is completely based upon smart contracts, hence, the risk is minimized. Also, to make sure there are no other risks involved while using DEX, users can instantly do a web search to know whether the exchange has audited smart contracts or not. After that, they can make decisions according to the other traders’ understanding. DEX also helps in preventing price manipulation or counterfeit trading volume while permitting users to sustain their anonymity due to the shortage of KYC cryptocurrency rules and regulations.

4. Better Security

Businesses prefer to create a crypto wallet app to store, receive, and send cryptocurrencies & NFTs, similarly, they also choose to build a cryptocurrency exchange like Binance to buy, sell and trade crypto. Better security is the highlight of using DEX along with regulating the users’ funds. On the other side, traders have complete control or custody of their funds, and they can connect with the DEX whenever they want as per their preferences. This way, the risk of funds being hacked, or theft is already reduced.

In this, no single entity is in charge of collectibles and as an alternative, dApps (decentralized apps) and smart contracts automated the transactions. If the platform gets slashed anytime, only liquidity providers might get affected in this situation.

5. Lower Transaction Fees

The reason behind the increasing craze for Defi development services is alleviating the need for a third party that leads to having cheaper or lower transaction fees. A large number of DEXs run on Ethereum at present resulting in high gas fees several times. However, if you go through the Blockchain development guide, you will get to know it has solutions to provide insignificant fees for end-users. For instance, on the Polygon network, it costs only a few dollars for a transaction worth $100,000.

Steps to Follow for Decentralized Cryptocurrency Exchange Development

After knowing all the essential details about decentralized cryptocurrency exchange platform development, it is time to sharpen your knowledge about ‘how to develop a DEX’. Be ready to get answers to all your queries, look at the below-

Step 1: Research and Analysis Phase

Initially, it is significant to gather all the required details from the client as well as identify the market circumstances, competitors, target audiences’ requirements, and others. Before initiating anything to create a DEX, it would be great to align your research with the client’s objective, vision, and future work scope. Proper market research and study will help you to reduce the complexity level, detect possible risks during and after the development, resources, and constraints, and decide on the fundamental and non-fundamental demands that will further provide ease in the development process.

Read More: How Much Does It Cost to Develop A Cryptocurrency Exchange App Like WazirX?

There will also be fewer challenges than expected after having a proper plan for every development stage. Whichever cryptocurrency development company you choose, ask them to consider all the requirements and get you a plan before starting to work. Collecting this data will help designers and developers to perform the necessary actions to deliver a deliberate plan.

Step 2: The Design Phase

How you design the decentralized crypto exchange will lead to the number of its users. The UI/UX design of the platform must be so attractive, appealing, and user-responsive that it can attract a large base of audience. A good design reflects that the DEX designers have understood what the users want. In this phase, the layout of included screens, platform elements, data types, visual effects, components, modules & architecture, easy navigation, different interfaces, and more will be defined in the DEX. There are various blockchain development companies in the USA offering amazing design concepts according to the users’ preferences and business requirements.    

Step 3: Execution & Development Phase

While reaching this phase, your chosen top NFT development firm in the USA has all the specific documents created from the start to understand what to include and what not. Whether you are obtaining decentralized crypto exchange or NFT development services, there is always needed to do pre-research and analysis to make the entire SDLC (software development lifecycle) smooth and flawless. DEX developers can begin the development process from here and can write the code to implement the necessary features and functionalities.

In this phase, different aspects and subsystems will be manufactured into one comprehensive system. Other than this, various frameworks, APIs, and advanced security features will also be added to the platforms. Be careful while integrating features & functionalities as these can also increase the complexity level of the system.

Step 4: Quality Assurance Testing

This phase defines the most required thing while developing a solution. Testing or quality assurance is something that makes you confident about your developed product. It includes different testing, system operability verification, examining, fixing, and removing the bugs until the product gets qualified for security, performance, and quality standards. Both automation and manual testing are necessary to ensure that solution has no errors and is ready to deploy.

Step 5: Deployment & Maintenance

It is the main phase of how to create a decentralized exchange where the decentralized crypto exchange will be launched or deployed for public use. It is the responsibility of your chosen decentralized exchange development company to provide support and maintenance for a specific period after the deployment. It includes software & functionality update, observing the system performance, adding new features, and many more. If businesses want to extend this support after the free period gets over, they can do it by paying an additional fee apart from the cost of decentralized cryptocurrency exchange development.

What are the Cost to Develop Decentralized Crypto Exchange?

Preceding to deciding about creating a DEX, first you must look at its cost assessment. For this, you have to consider various aspects to get a proper estimation that doesn’t differ much from the actual development cost. The following are those aspects:

• Market Assessment and Analysis
• Project Management
• UI/UX Designing & Framework
• Back-end Execution
• Quality Assurance Procedure

Depending on the above elements, the forecasted DEX development cost will be around $50,000 to $100,000. But this is just an estimation, the evaluated cost can vary depending on your choice for the project.

Final Verdict

We hope, you have got enough understanding about the decentralized exchange (DEX) that has gained a lot of popularity in recent years. With the introduction of Blockchain & NFT development services, there were several other services as well that got boomed with time. Defi is one of them and decentralized crypto exchanges have now proved the most efficient platforms to borrow funds or offer liquidity to acquire trading fees. These DEXs have also helped users to earn huge profits by using their crypto holdings by placing them in liquidity pools. While smart contract integration into DEXs has also diminished the security risks that make it the most preferred platform for users.   

Seeing this, if you also wish to create a trustless DEX solution, try to join hands with SemiDot Infotech. Being a reliable decentralized crypto exchange development company, we are right here to facilitate you with different feature-rich & cost-effective solutions that will benefit you in numerous ways in the crypto space. Contact us for more information!      

FAQs-

To get more details about decentralized crypto exchange development, look at the below FAQs: