A Critical Analysis of Decentralized Exchanges

A Critical Analysis of Decentralized Exchanges

An overview of decentralized exchanges (DEX) reveals their defining value proposition. Their ability to directly connect counterparties, thereby enabling them to trade on-chain directly, results in the independence of centralized parties and avoiding any associated risks familiar with centralized exchanges. By supporting direct on-chain trading, the necessity for exchange wallets is negated, thus eliminating the risk of losing cryptocurrency through theft or hacking attempts. Further analysis of decentralized exchanges denotes that the time for evolution is ripe, and Vegaswap’s DEX will be at the forefront of such changes.

Therefore, it does not come as a surprise that, in 2020, DeFi markets blew up, growing at an astronomical rate in both market size and value. The convenience created by decentralized exchanges (DEX) made it easier for trading activities in the market; however, the picture isn’t as rosy as one would expect it to be, and opportunities for fundamental advancement exists.

The analysis of decentralized exchanges show there’s scope for a BIG improvement

Thus far, decentralized exchanges have shown excellent possibilities through the appropriate application; nevertheless, a critical approach is needed to determine just how good they are and how they can potentially get better.

1. The good: A compelling value proposition

The changing financial situation in 2020 owing to the pandemic may have fueled the interest in DeFi. More traders were in the market for a new, likely decentralized experience following more gaps exposed in centralized exchanges, even in the blockchain ecosystem, by the global pandemic. Traders were enticed to participate in DeFi through DEX that offers the following benefits to their traders.

  • Cheaper transaction fees — Transaction fees on these exchanges are significantly lower than on centralized exchanges, making it a no-brainer for active crypto traders.
  • Lower counterparty risk — By making trading between two parties direct, without the help of intermediaries, the risk of loss resulting from third-party dependence is eliminated.
  • Financial inclusiveness — Unlike centralized exchanges, participation is opened to all.
  • Privacy — Without third parties involved, traders do not have to submit their data to any unknown third-party entity.

The results of these advantages are evident in the growth of DeFi trading and DEX.

2. Not entirely Rosy

The migration witnessed proved to be a mixed bag as there were also users in DEX. Notably, DEX was exposed to losses resulting from price and token manipulation within DeFi platforms. Just recently, Spartan Protocol became the latest victim in this series of exploits, losing around $30 million in the process. It is among the many that have lost value in the tune of millions.

Users have also not been spared; fortunately, their loss is somewhat restricted in value but has a discreet dampening effect on the onward surge of DeFi trading and success. The most common loss for users in DEX is impermanent loss, where the price volatility, which is sometimes affected by some of these hacks, eats into the tokens generated from liquidity pools by LP. This affects the morale and enthusiasm that is partially fueling the growth of the decentralized industry.

Another subtly glaring realization for users was the apparent inadequate liquidity, resulting in other potential losses.

Vegaswap is the evolution to current decentralized exchanges titans

At this point, it’s common knowledge that the established leaders are in the DEX space. Names such as Uniswap, Sushi, Balancer, and Curve have rightfully consolidated their grip on the DeFi market by providing users the services they desired by executing their trading actions.

However, there is room for substantial improvement over the status quo, and Vegaswap can provide just that. Along with Vegaswap’s native token, our decentralized exchange will have several features intermittent among the names mentioned above. Features include:

  • Stablecoin Pool
  • LP bootstrap
  • Treasury DAO
  • SMART Pools
  • Multi DEX

These are positioned just at the initial incubation process. Over time with the continued evolution and sustenance of the Vegaswap DEX platform, more and more user-friendly features will be initiated into the exchange.

Plugging the leak

The value lost from hacks alone in DEX could be in the staggering region of billions. Vegaswap, an automatic market maker (AMM), is working on its platform that could potentially stop the leak and invigorate participation in DeFi trading. Its entry into the market is strategic as it can leverage the pro while addressing the cons in the market.

Through an analysis of decentralized exchanges, Vegaswap challenges market inadequacies by implementing smart pools, dynamic pricing, and leveraging a multichain approach to leap ahead of the existing DEX in terms of service provision. The uprooting market leaders such as Uniswap, Sushiswap, Curve, and Balancer will be a challenging task even with its market-changing innovation Vegaswap. These platforms command high market caps and have impressive TVL’s all above $1 billion in value. Total Value Locked (TVL) simply being a metric to represent the amount of assets that are currently being staked in a specific protocol; the general consensus being the higher the value locked up in a DeFi d’App, the better.

Nevertheless, through our analysis of decentralized exchanges, what Vegaswap introduces into the DEX industry can trigger a market shift, causing more people to opt into their LP-focused platform. Vegaswap, firstly, takes on impermanent loss. The platform is designed to help its users configure liquidity pools with a common goal. Compared to other exchanges, Vegaswap gives more control and more protection for traders on its platform.

Through the configurations allowed while creating liquidity pools, Vegaswap encourages more LP participation as the pools are configured to meet the diverse needs of a diverse market. Innovative designs using multiple coins and creative parameters through Vegaswap enable traders to reduce impermanent loss through the adaptive spread.

Vegaswap’s dynamic pricing solves a common Uniswap issue

To encourage liquidity in the ecosystem, trading is enhanced through dynamic pricing. It considers prevailing market conditions to configure the price that best represent the market and suits the trader. Dynamic pricing also ensures that traders pay the least amount in trading fees, encouraging multiple transactions. It also helps that Vegaswap support multiple DeFi tokens via its support for on-chain and cross-chain trading.

Support for multiple coins gives emerging DeFi applications a chance to kickstart or boost their performance in the market. Therefore, Vegaswap holds the potential to help DeFi applications perform even better indirectly.

Ultimately, Vegaswap plugs all points of token hemorrhage by creating secure, configurable smart pools that prevent losses from hacks exploiting the trading weaknesses of DEX. It prevents impermanent loss through the same configurations and its dynamic pricing tool. Further, encouraging liquidity provision dampens market volatility arising from numerous withdrawal demands from a liquidity pool, thereby indirectly preventing impermanent loss.

The current analysis of decentralized exchanges is an almost solvable puzzle that requires the missing piece. Vegaswap appears to be that final piece.

Connect with Vegaswap and learn more about the platform through our:




Vegswap is a protocol for creating liquidity and trading tokenised assets on public blockchains. The only AMM powered by a multi chain dynamic market maker.

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Vegaswap AMM

Vegaswap AMM

Vegswap is a protocol for creating liquidity and trading tokenised assets on public blockchains. The only AMM powered by a multi chain dynamic market maker.

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