Reviewing DEX security

Reviewing DEX security
Reviewing DEX security - The Decentralised Story

Crypto has been a revolutionary technology that has triggered notable changes in the world of finance (and tech). It has presented us with a more dynamic and flexible way of storing and transacting with money, making the financial system a global stage. However, the prowess of crypto can only be if people can easily access them and this is where crypto exchanges come in.

The first category of exchanges that were built was centralized and custodial, they acted as an intermediary between the buyer and seller. You can liken a centralised exchange to a stock exchange that uses order books to match and execute trades on cryptocurrencies. Centralized exchanges helped in converting fiat to crypto; which is still a factor that gives them relevance. The birth of decentralized exchanges ushered in a new approach to crypto peer-to-peer trading. Unlike its centralized counterpart, DEXs make it easier for traders to trade their cryptocurrencies without needing an intermediary or a trusted third party (TTP), instead, users rely on smart contracts. Let’s take a quick overview of Decred’s own decentralized exchange; DCRDEX.

DCRDEX (Decred decentralized exchange) is a permissionless exchange that enables users to carry out trustless cross-chain P2P transactions of blockchain assets without the presence of a custodial third party. The exchange is powered by Atomic Swaps technology; which is a smart contract that facilitates the secure exchange of tokens without giving up custody of your asset. The Motley Fool reports Decred to be the first ecosystem to execute an atomic swap ( DCR: LTC). Aside from its outstanding technology, the exchange also possesses some unique key features including;

  • Zero Fees: Unlike other decentralized exchanges, DCRDEX operates on a no-trading fee policy, .  Clients must only pay a minimal one-time registration fee currently payable in DCR or BTC to use the DCRDEX server. This is set in place to reduce the presence of bad actors.
  • Privacy: Users do not need to forfeit their KYC information to use the DCRDEX platform
  • Order Matching: DCRDEX uses pseudo-random order matching within epochs to scale down manipulative trading practices and ensure that traders get a fair settlement.

The exchange currently has pairs for Decred, Bitcoin, Litecoin and has started support and pair initiation for Ethereum, ERC20 tokens, Zcash, Bitcoin Cash and Dogecoin with more coins on the way.

DCRDEX BTC / DCR Market Page

Choosing a DEX

When it comes to choosing what DEX to use, traders usually consider user interface, liquidity, trading fees, and ease of use. Recently, traders started paying more attention to the security/safety of a decentralized exchange considering the recent hacks that occurred in Defi in 2022. The crypto winter has rolled in series of unimaginable events, thus, it is very important that traders only interact with secure exchanges to avoid loss of funds.

How DCRDEX protects its users

To fully understand how DCRDEX protects traders, we must take a look at the building block of the exchange - atomic swaps. Atomic swaps is a smart contract technology that allows the direct exchange of coins of different blockchains without having to trust a third party. Involved parties pay into a contract transaction, one contract for each blockchain. One party generates a secret and pays the intended amount into a contract transaction, the contract output can only be redeemed by the second party as long as the secret is known.

The word “atomic” derived from “atomicity” means a transaction is carried in full or nothing. In essence, both parties either receive the desired value of the token they wish to swap to or they get a refund.

What does this mean for users? It means that traders have full autonomy and responsibility over their coins and can performe trades directly through on-chain contracts. DCRDEX only helps in coordinating trades but does not take custody of assets traded, thus reducing the security risks. Compared to other decentralized exchanges that rely on centralized pools or even DeFi bridges that take custody of a trader’s assets, you’ll observe that DCRDEX gratifies security and privacy. As decentralization gains more ground in the crypto community, it’s important that a trader makes well-informed decisions when it comes to choosing an exchange

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