With decentralized exchanges (DEXes) on the rise among the crypto world, it becomes a useful question to ask what benefits they confer upon investors that centralized exchanges (CEXes) cannot? Is all of the fervor for these alternative exchanges warranted, or do they fall short of expectations? We will explore some of the features of decentralized exchanges and what Lattice Exchange offers to this ecosystem.
Let us begin with the alternative to DEXes; traditional or centralized exchanges. These exchanges take custodianship of your crypto assets, as a bank would, and one must trust the exchange to properly allocate funds, control one’s crypto wallets, and deposit and withdraw funds. In short, they become the third-party to all trades and transactions, and one must have faith that, as the mediating agent, they will precipitate one’s will and properly secure one’s assets.
Additionally, centralized exchanges determine which assets are available for trading or purchasing. Often, available assets are very limited in respect to the number of assets teeming in the market at large. With many of the most popular centralized exchanges like Coinbase or Gemini, once an asset becomes available, they possess an already significant market cap.
Centralized exchanges are also vulnerable to changing regulations surrounding this asset class. With certain countries banning or heavily regulating crypto exchanges, decentralized platforms remain free of this legal barrier to entry.
Without any commentary on these bare facts regarding the nature of CEXes, the reader may already see the problems that arise or are intrinsic to these exchanges. What then is the character of decentralized exchanges?
Decentralized exchanges are distributed ledger protocols and applications that remove the need for a custodian by permitting users to trade and transact assets in a peer-to-peer fashion. Generally speaking, the user’s funds are transferred between wallets using an order matching algorithm (such as an automated market maker) and smart contracts, (or in the case of Lattice, a microservice) that executes trades automatically.
Cryptocurrency’s original aims of privacy and decentralization are realized by these exchanges. When one surveys the benefits of choosing this method for managing one’s crypto assets, it becomes difficult to desire the alternative.
Removal of a custodian, or intermediary agent is perhaps the most obvious advantage of choosing a DEX. One no longer must concern oneself of the very real threat of hackers stealing assets because the exchange’s security was subpar. One can also circumvent mismanagement by the custodian of one’s funds, as well as significant fees for their service. With the removal of the custodian, one also avoids invasive know-your-customer requirements.
Another major benefit for DEX users is the possible mitigation of transaction fees. Centralized Exchanges are heavy on fees, yet by removing the intermediary, the fees should be less? Correct? Well, not exactly. Presently, most decentralized exchanges are operating on the Ethereum network, and with its inability to handle the influx of users, and its corresponding rise in gas fees (transaction fees), here there seems not too much of an advantage…
But not too fast, as there is an emerging exchange that has the tools to fix this issue. Lattice Exchange, as a DEX that will operate on the Constellation Network will offer near-zero transaction fees, thanks to the network’s intrinsic scalability, and DAG architecture, at last reifying the dream of nominal fees. This is something a centralized exchange could never effect for they would not have the capital to continue operating.
This is not the only advantage Lattice will bring to DeFi. Because Lattice will be utilizing the Constellation Network Hypergraph Protocol, it will have cross-chain interoperability. This will permit tokens to be swapped across different blockchains. Currently, most DeFi protocols and applications allow only intrachain swaps, predominately on the Ethereum blockchain.
This brings us to another advantage of DEXes in general. As previously mentioned, centralized exchanges are exceedingly limited in trading pairs and available assets. With DEXes, the abundance of available cryptocurrencies, including low market cap assets, is remarkable. This is true even with DEXes that are only operable on one chain. Consider the current king of DEXes, Uniswap, which operates on the Ethereum blockchain. As of this writing there are 19,654 tokens available for transactions. Compare this with Coinbase with its 35 tradable assets.
Yet despite the impressive number of available cryptocurrencies on Uniswap, It is not without its flaws. Indeed, there are no DEXes available that are free of faults. Were the current DEXes perfect there would have been no need for the newcomer, Lattice.
Until now, decentralized exchanges have been thin on liquidity. Without a trailblazing exchange like Lattice that aggregates liquidity from different DEXes, the decentralized platforms would trail behind their centralized competitors, who are much less prone to slippage. However, with the arrival of Lattice, the traditional advantages of centralized exchanges are null and void, making the decentralized option the optimum avenue for crypto transactions.
One last objection can be made by those who prefer centralized exchanges. The best CEXes fulfill transactions almost instantly, whereas decentralized exchanges are fraught with poor latency. What is worse is that many distributed ledger systems become slower as more users join the network. This is certainly the case with Ethereum, as it employs a traditional blockchain architecture.
Fortunately, Lattice will utilize the Constellation Network to effectuate transactions on their exchange. Considering Constellation is built with a directed acyclic graph architecture rather than a monolithic, traditional blockchain, the speed of transactions will exponentially increase, rather than diminish, as more users join the network.
It is fair to say after surveying the two types of exchanges, that each group offers benefits and detriments, giving ground to their opponent. Yet, the detriments of other DEXes, namely: fees that are little better than centralized exchanges, as well as low liquidity and latency (Problems CEXes lack) have all been redressed by the innovations of Lattice.
With the groundbreaking progress that Lattice brings to the ecosystem of decentralized exchanges, this platform becomes entirely preferable to the centralized one. Although it is doubtful whether CEXes will vanish through obsolescence, it has become certain that this new DEX has rendered the centralized model, at the least… a little antiquated.
Join Lattice In Changing The Face Of DeFi
Lattice is a DeFi application built with Ethereum and Constellation’s Hypergraph Transfer Protocol (HGTP). Empowering users using advanced AMM algorithms.
Authored by John Ryan
John Ryan is an independent writer and an avid enthusiast of blockchain technology. He received his University education at Northern Michigan University, as a history major, where he was inducted into the Phi Beta Kappa Society for academic excellence. While in Michigan, he also trained as an athlete at the United States Olympic Education Center, where he achieved the status of a multiple-time University All-American in Greco-Roman wrestling. He has authored several plays and a collection of poetry. Some of his major areas of interests includes: Finance, Literature, and Religious Studies.
John is available to contact via email at: email@example.com