Polkadex vs other DEXes: Why we are different
What is a Decentralized Exchange (aka DEX)?
With a decentralised crypto exchange, users can trade tokens without handing custody of their coins over to a third party. A DEX relies on automatically executed protocols called smart contracts that enable crypto trades to happen without a custodian in the middle.
Traders can seek gains and not have to worry that a centralised exchange (CEX) like Binance or Coinbase might suddenly limit access to their crypto or restrict their ability to trade it.
That’s proven to be an attractive offer — particularly for more advanced crypto traders. But as the DeFi market expands and attracts more mainstream users, the DEX market has begun to respond.
Who leads the DEX space?
A handful of first movers have taken an early lead, but who are the innovators and what sets them apart?
The Decentralised Finance (DeFi) marketplace is on fire. The current hoard of DeFi-deposited assets now sits at USD 120 billion and climbing — across a user base closing in on two million.
Category-wise, decentralised exchanges (DEXes) are the biggest story in DeFi. Insurgent blockchain protocols like Polkadex, Uniswap, and SushiSwap are offering crypto traders a more sophisticated alternative to popular centralised cryptocurrency exchanges (CEXes) like Coinbase and Binance.
But who are the leaders, and how does one DEX offer differ from the next?
In this blog article, we’ll highlight the projects disrupting the market, explain what sets them apart and what makes Polkadex unique.
Polkadex: bridging the CEX and DEX gap
The main goal of Polkadex is to bridge the gap between decentralized and centralized exchanges, creating an ultimate trading experience for any type of crypto trader from newbies to professionals. For this reason, we took the benefits of CEXes and DEXes and merged them together making Polkadex a not-your-ordinary-DEX.
The key distinction between Polkadex and other DEXes lies in Polkadex’s tech stack that lets us offer wider functionality.
Polkadex goes beyond the basic swap protocol, it is an orderbook-based decentralized exchange built on Substrate. Hence, Polkadex users can not only swap tokens but also place market orders and limits to execute trades at certain price points automatically in the Orderbook exchange, trade their crypto assets for fiat and delegate their crypto assets to third parties to profit from advanced trading features like bot trading just like they do on most centralized exchanges. All of these in a fully decentralized environment.
Traders who are used to CEXes or are new to crypto will also benefit from the great UX and easy navigation that Polkadex offers. You don’t need to wonder how things work with Polkadex and can jump straight to trading because of the easy to use interface.
Decentralized exchanges bring peace of mind to traders because their funds are kept safe, however, DEX space has lots of flaws.
Polkadex keeps the high safety part of the equation but at the same time eliminates some of the most common issues with modern DEXes.
If DEXes are going to reach a wider audience, one of the thorniest issues to overcome is transaction costs. Most of them operate on the Ethereum network, where the blockchain’s gas fees (money paid to miners as a way to manage network congestion) can average $50 or more. Swapping tokens worth less than $500–1000 does not make any sense with such high fees. Hence, DEXes become way less attractive platforms for an average retail trader.
As Polkadex is built on the Polkadot network the swaps are completely gas-free, so the fee for swapping tokens is zero. Fees on standard market orders are currently set at just 0.2 per cent (subject to changes at the moment, we will follow up with an elaborate article about the fee structure soon), while high-frequency trades happen without a cancellation penalty, giving algorithmic institutional traders more freedom to enter and exit markets dynamically. Unless a transaction absolutely has to happen on the Ethereum chain, gas fees can be avoided completely.
Polkadex can deliver these advantages thanks to the Polkadot ecosystem, a technical bridge connecting mainstream platforms like Ethereum to the myriad of specialist blockchains, coins, and tokens exploding onto the crypto landscape.
Linking up decentralised and centralised exchanges is part of that picture. For users who like the simplicity and user-friendliness of a CEX but want access to more exotic DEX offers, Polkadex’s trading engine opens doors to a broader range of blockchains, liquidity pools, and potential counterparties.
That makes Polkadex a kind of aggregator for cross-chain liquidity. With Polkadot, Parachains, and bridge-connected Blockchains operating in the background, choice goes up, the price goes down, and trade execution is faster.
Users can trade Polkadex’s PDEX tokens or any tokens for others in 20 milliseconds or less, taking advantage of an off-chain order book that can handle processing volumes of up to 500,000 trades per second while still providing verifiability. Currently, this performance is unmatched on the market, i.e. no other DEX platform can show the same numbers. This is achieved by using a new technology named Trusted Execution Enclaves, which allows a verified piece of code to be executed in a secure environment without the need for network consensus.
The drastic reduction or elimination of fees also leads to another strong point of Polkadex — it puts an end to the system- gaming tactics like front-running, price slippage and arbitraging. Trades are handled on a trustless basis in a parallelized way, meaning it’s a ‘first come, first served’ system; rather than the ‘who can pay the most’ framework seen on Ethereum-based DEXes.
Uniswap
Uniswap is the first decentralized exchange and the current market leader in terms of total value locked (TVL), the DeFi equivalent of market capitalization.
Uniswap is an Ethereum-based DEX that enables decentralised crypto trades via proprietary ERC20 tokens. Trades happen through an automated market maker (AMM) mechanism, which uses smart contracts to create and then manage liquidity pools. Users access the pools and use their tokens to swap cryptos and crypto-backed assets within them.
The AMM model allows users to trade cryptocurrencies and earn yields in the form of trading fees and ERC-20 tokens without a centralised exchange operator acting as an intermediary.
The total cost of transaction fees on Uniswap can be punishing. While Uniswap charges a 0.3% fee for each trade — comparable to the fees charged by popular CEXes — gas fees paid to Ethereum miners as a way to manage network overload can and recently do go way over $50.
That makes Uniswap uneconomical for transactions of less than $1000, shutting many individual traders out of the exchange.
Moreover, the interface, manual settings selection and long waiting time for transaction confirmation make the whole trading experience very puzzling, especially for novice traders.
SushiSwap: democratising platform governance
Next up on the DEX sweepstakes is SushiSwap, a community-owned and community-run decentralised cryptocurrency exchange.
It started its life as a fork of Uniswap, built on Ethereum network and using a version of its mother DEX’s automated market-maker (AMM) to connect buyers and sellers.
Perhaps the most significant distinction between the two is that SushiSwap’s native coin SUSHI also acts as a governance token, allowing SUSHI holders to take big strategic decisions about the future running of the exchange.
SUSHI holders can vote on proposals for protocol improvements, changes to the DEX’s fee structure, creating new liquidity pools or finding grants for new Sushi-related projects.
Like Uniswap, SushiSwap charges a 0.3% transaction fee. Unlike Uniswap, it hands a quarter of the fee to liquidity providers in the selected pool, then sets another 0.05% aside for SUSHI holders who have staked their tokens in a special ‘SushiBar’ pool in order to earn rewards.
Gas fees and other flaws of Uniswap are an issue on the Sushiswap platform, too.
Balancer: faster rollouts for new tokens
Balancer is an emerging Ethereum-based DEX providing a platform for Ether (ETH) and ERC20-backed assets.
As with other DEXes, Balancer users can swap tokens, create liquidity pools, and earn yields. What Balancer does differently is calculate asset values using the ratio between assets shared in a given liquidity pool. Using that approach automatically affects the pool ratio and thereby the price of each asset, making the entire process fully ‘trustless’.
Balancer has rolled out another innovation called Liquidity Bootstrapping Pools (LBPs), which has made it a frequent go-to launchpad for new projects. LBPs allow crypto developers to distribute new tokens to a large number of initial holders while speeding up the discovery of their fair market value.
Something else setting Balancer apart from others is its fee structure. Transaction fees are set by pool owners, typically running between 0.0001% and 10%.
When a trader swaps one token for another, Balancer optimises the price of the order using existing pools. The trader can view the pool and check out its fee structure before confirming an order.
The DEX’s recently launched update, Balancer V2, also offers improved gas fee efficiency. It promises to reduce Ethereum mining fees by ensuring only final token amounts are transferred between vaults, even when trades are executed in batches against multiple pools.
PancakeSwap: taking DEX to a new blockchain
PancakeSwap is a newer decentralised exchange that, while similar in look, feel, and functionality to Uniswap, has been built on the Binance Smart Chain (BSC) instead of Ethereum.
Like other DEXes, PancakeSwap lets users swap tokens without a custodian in the middle, plus earn rewards from liquidity pools. Traders can stake their tokens to earn further rewards and take part in lotteries. It also uses an automated market maker (AMM) system to enable crypto trades.
What really makes PancakeSwap different, however, is its choice of the development platform. Rather than build on Ethereum network, where most of the action happens in DeFi, PancakeSwap’s project team chose relative newcomer Binance Smart Chain — and they can be more cost-effective as a result.
Binance Smart Chain is less established than Ethereum, but that also means less network congestion. Developers can take advantage of lower underlying transaction costs to keep their trading fees low while also offering speedier transactions. That makes their pricing and user experience more competitive. Also, the BSC chain is not fully decentralised which means its nodes are run by a selected group of trusted parties.
Polkaswap: Another Polkadot-based DEX contender
Polkaswap is a new project on the horizon. Like Polkadex, it plans to leverage the Polkadot ecosystem to connect mainstream platforms like Ethereum and eventually Bitcoin to other blockchains, coins, and tokens.
Its liquidity aggregation technology aims to connect decentralised and centralised exchanges too. Project leads hope to cater to users who want the user-friendliness of a Coinbase but also want access to a broader range of blockchains, liquidity pools, and potential counterparties.
Polkaswap says it will offer ‘smart’ liquidity routing to keep its pricing low, which means automating the process of locating and sourcing the best (e.g. most profitable / lowest cost) pool for any new order request. If it works, it could mean more profit potential for individual trades.
Like Polkadex, Polkaswap also plans to aggregate liquidity from both centralised and decentralised exchanges. That would help make it a sort of one-stop shop for crypto traders and eliminate the need to sign up with numerous exchanges in order to access more exotic token pairs or find the best trade price for a more specialised trade.
Polkaswap is an AMM based DEX and its main functionality is token swaps only.
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