Cash.Tech Newsletter #5 — The rise of decentralized exchanges and the role of Cash.Tech
Decentralized exchanges (DEXes) are among the most novel innovations in the cryptocurrency space. Even though only a handful existed four years ago, we currently have over 100 DEXes built across multiple blockchain networks.
DEXes are blockchain-native by design and one of the many applications driving the adoption of self-custodial wallet solutions like Cash.Tech’s. In this week’s newsletter, we review the rise of decentralized exchanges and how Cash.Tech is poised to capture a significant share of this emerging space. First, we bring you some exciting development updates.
Cash.Tech development update
Our development team has completed research on the planned video/audio feature for NFT Display and now has a prototype live in the development environment. In the coming days, our engineers will push the feature on testnet, making it available in testflight mode. Once the review process is successful, the team will begin preparations to ship the feature to mainnet.
We have also initiated the first steps to introduce multi-chain functionalities in the Cash.Tech wallet. The development team is using the Etherscan, Bscscan, and Polygonscan APIs for the initial integration and hopes to expand the functionalities in the coming weeks.
Lastly, we are happy to report that the team has resolved certain minor security issues raised in the recent audit. We remain committed to keeping the community updated regarding our efforts to provide the best mobile wallet solution on the market.
Decentralized exchanges rising in popularity among crypto investors
As the name implies, a decentralized exchange is a platform that allows investors to exchange crypto assets without the need for a central party. The rules governing the token exchange are written into smart contract codes that execute based on a user’s request.
Unlike centralized exchanges (Coinbase, Binance, etc) where there is an order book and the platform retains custody of user funds, a decentralized exchange protocol utilizes pools of assets deposited by traders and never holds user funds.
The history of decentralized exchanges dates back to early 2014. However, it was not until the launch and success of Uniswap in late 2018 that many DEXes began to spring up, offering different improvements and functionalities. Fast forward to the present, DEXes continue to evolve and are becoming a popular option for crypto investors. At its peak in September 2020, the trading volume of DEXes was close to 20% of the volume of their more established centralized counterparts.
(Source: TheBlock via Coingecko)
At the time of writing, the top three DEXes, namely DyDX, Uniswap and PancakeSwap are reporting a combined daily trading volume of over $10 billion. Additionally, Uniswap and PancakeSwap report having 2.5 million and 2.8 million users respectively. This user count is significant considering that Uniswap only launched in 2018 while Pancakeswap went live in late 2020.
Will DEXes become the standard?
The benefits that DEXes offer ensure their popularity amongst crypto investors. For one thing, many have witnessed the downfall of centralized exchanges such as MtGox, Cryptopia, QuadrigaCX, resulting in the loss of billions in cryptocurrencies. DEXes mitigate such losses by ensuring that users retain full control of their assets at all times.
The continued evolution of DEXes and the underlying blockchain also means that these platforms can now support complex ordering processes such as limit orders, stop-losses, margin, and leveraged trading. These functionalities were previously impossible as a result of high fees and slow speed on generation-one blockchains like Ethereum.
However, the advent of layer-2 solutions like Polygon and faster layer-1 networks like Solana have allowed for the emergence of DEXes like Serum, QuickSwap, and Mango.Markets that support complex ordering and nearly the same functionalities as their centralized counterparts. It is not surprising then that Sam Bankman-Fried, the founder of one of the largest centralized exchanges, FTX, recently noted that he is “not necessarily super bullish on the future of business that is nothing but a matching engine.” The fact that the same services can be offered on-chain means centralized exchanges may continue to lose market share overtime and must resort to other methods to generate revenue. FTX is heavily invested in a decentralized exchange project Serum, following the steps of major competitor Binance which owns the Binance DEX.
Admittedly, DEXes must still do a lot of work to offer the superior user experience available on centralized exchanges. It is still difficult for the average person to get started with DEXes. Most of them lack fiat on and off-ramp options, meaning users must still go through a CEX before they can get started.
The Cash.Tech team is closely monitoring the evolution of DEXes and will continually optimize its wallet solution to meet the needs of the average crypto investor. Aside from providing in-built browser access to DEXes, the wallet features cross-chain compatibility, meaning users can interact with their favorite DEXes on different blockchains using a single application on their mobile device. Also, we are collaborating with different fiat on and off-ramp partners to make it seamless for users to trade crypto without the ambiguity of having to purchase on a CEX before withdrawing to a self-custodial wallet.
These are still early days for DEXes. As the rest of the crypto industry catches up to a DEX-first world, we remain dedicated to our promise to deliver the ultimate crypto user experience in a single application. In the coming months, we plan to roll out an in-built token swap feature, the ability for users to stake CATE tokens, and a first-of-its-kind lending program. We are excited for what lies ahead!