DeFi, short for Decentralized Finance, is by far the fastest growing sector of the crypto space. It reached a staggering $6.1B value locked in DeFi markets in mid August, up from “just” 1B less than three months earlier at the end of May.
Using blockchain, digital assets, and smart contracts to process financial services without relying on a central authority, Defi’s growth continues unabated despite the rise in gas fees on Ethereum.
DeFi exponential growth is powered mostly by DEXes and DEX aggregators that enable swapping crypto assets trustelessly, transparently, and easily.
At the end of July, aggregators accounted for about 20% of all decentralized exchanges, so it is worth understanding the characteristics of DEXes, AMMs, aggregators, and built-in DEX Marketplaces, how they work, and what are their respective pros and cons.
What is a DEX?
A DEX (Decentralized Exchange) is a decentralized peer-to-peer exchange. In short, it is an online service based on smart contracts that enables individuals to perform token swapping without the intervention of a third party.
Depending on several factors, such as liquidity depth, transaction volume, underlying technology, and other factors, each token pair's exchange value may vary substantially between DEXes.
In addition, each DEX covers some, but not all, crypto assets and allows swaps on a few specific pairs based on their own selection criteria, so traders have to find the right DEX for their chosen pair before performing a swap.
As the number of crypto pairs and the volume of transactions expanded, DEX aggregators began emerging to enable traders to quickly find the best value for trading the crypto assets of their choice.
What is an AMM?
AMM stands for Automated Market Maker. In the crypto space, it means that these are DEXes with a twist. An AMM holds reserves of a token pair and relies on a simple algorithm to determine the price of each token in the liquidity pool holding these reserves.
The algorithm constantly adjusts the price of each token based on the buying and selling activity in the liquidity pool itself. The result is that the price of swapping between token x and token y might vary greatly based on the choice of liquidity pool and on the volume of transaction planned.
This means that selecting the right AMM or spreading a swap amongst more than one AMM might have a considerable impact on the buying/selling price of the selected tokens.
Kyber and Uniswap are examples of AMMs.
So between DEXes and AMMs, crypto traders needed help, which led to the creation of DEX Agrregators.
What is a DEX Aggregator?
An aggregator is a user-friendly layer built over decentralized infrastructures. It gives users improved visibility of the liquidity layers and includes functionalities such as exchange, lending, and other fintech functions.
Thanks to the unimpeded access to these functionalities, the user can seamlessly process transactions without complex transactions between underlying consensus and liquidity layers managed by native assets and Defi, respectively, or as available in DEXes and AMMs.
Typically, an aggregator will scrape the live exchange rates on many DEXes, and present the user with a list of the best value for the crypto asset pair swap they intend to process.
These values, however, do not always factor in the gas fee. With Ethereum gas fees recent vagaries, this is a crucial element that needs to be factored individually by the user. Furthermore, different aggregators are compatible with different wallets, which means users might have to transfer assets from their default wallet to a wallet compatible with the DEX’s compatible wallets to perform a transaction, adding one more gas fee layer.
1inch, Ox, Dex.ag and Totle are examples of DEX aggregators.
What is a Built-in DEX Marketplace?
A new concept in the crypto space, 2key.network innovates by fully integrating DEXes and DEX aggregators with its marketing solution DApp and with users’ connected wallets, all from a single interface.
2key is the first DApp to offer its users the combination of swapping facilities with TX fee options, built-in wallet, and working decentralized marketing solutions that already proved their worth (SmartLinks, Zoom SmartSession, Donation SmartLinks., and Token Sale SmartLinks), in a single integrated dashboard.
Just launched, 2key DEX Marketplace currently offers swapping options through KyberSwap and Uniswap directly from 2key native or connected wallet’s dashboard, with full visibility of the transaction value and transaction fee options. More DEX aggregators are added regularly, so keep checking.
For arbitrage purposes, 2key lets users buy and sell tokens on various DEXes and AMMs (currently Kyber and Uniswap, more to be added soon) from a single platform, with at a glance visibility of the temporary price difference in real-time. The available tokens at the moment are DAI, ETH, BUSD, DAX, ISTD, TUSD, RENBTC, WBTC and USDC, with more added regularly.
2key DEX Marketplace enables users to select one of four TX fee options (Economic, Average, Priority, and High Priority), giving users enhanced flexibility in privileging Tx cost or transaction time depending on their priority.
Even better, 2KEY tokens earned through any of the many earning options, sharing SmartLinks, reputation mining or social mining, or hodling in liquidity pools, can be swapped directly from users’ 2key account wallet, eliminating the need to transfer the earned token to an external wallet or exchange.
2key is about to add a few more wallets to the list of compatible wallets and is incrementally extending the number of DEXes and AMMs listed in its marketplace.
The DeFi landscape is evolving fast, and keeping up with the new developments is crucial to keep up with new opportunities. As the number of swap options increase in the space, users will get better price, slippage and value.