Smart contracts are ushering in a slew of new industries. One of the most impactful is the decentralized exchange (DEX) such as Uniswap. Built on the Ethereum network, it was the first DEX run by smart contracts, (though an earlier one existed on the XRP Ledger).
Here’s my video lesson about this new type of decentralized app which allows for peer-to-peer cryptocurrency exchange.
While blockchain DEXs have existed on the XRP Ledger and XLM network long before Uniswap, this new type has been exploding in popularity since 2018. The smart contracts allow for providers to lock up pairs of coins. Traders then swap their cryptocurrency against these “liquidity pools” and the liquidity providers get a cut of the fees. There is no middleman exchange or company to hold the tokens that are being traded.
The smart contracts that run the trading cannot be changed by any bad actors since they exist on a blockchain. These programs wait to execute trades between the traders and liquidity providers. Basically, the swaps happen between the wallets of the traders and the pools of assets.
This revoltionary way of trading peer-to-peer will grow in the future. As decentralized tech advances, it will become more secure, faster, and have less fees. Many projects are linking up various blockchain networks, so cross-chain coins will be swapped more frequently too. I see the future of DEX trading as one giant liquidity pool across the whole industry!