Why Hire Experts in Decentralized Exchanges?
If you run a decentralized exchange or transact with decentralized exchanges, you need to know how such operations or transactions affect your business. You may also want to determine which is better for you – decentralized exchanges or centralized exchanges.
What's more, you may need to know the latest on an ever-changing space. In such cases, you need expert legal advice from an experienced blockchain attorney specialized in decentralized exchanges.
Centralized exchanges may be more popular than decentralized exchanges. However, decentralized exchanges have unique abilities, such as more user control on funds and private keys.
This makes decentralized exchanges targets for fraud and other criminal activities that attract the attention of federal authorities. Decentralized exchanges are under immense pressure. The same applies to individuals and businesses using such exchanges.
Individuals and entities requiring legal advice to defend themselves against suspected or active federal investigations need expert advice. At Blockchain Lawyer, we have experienced experts in decentralized exchanges (blockchain attorneys) that can keep you updated on the latest regulatory changes on centralized/decentralized cryptocurrency exchanges.
We can assist you. Claim a free decentralized exchange consultation session. Contact us today.
What Is a Decentralized Exchange?
A DEX (decentralized exchange) is an online trading platform that doesn't use third-party intermediaries. Instead, the exchange allows its users to execute trades using smart contracts. Decentralized exchanges don't act as custodians of your funds. They don't hold their client's private keys. They also differ in regulation. DEXs are unregulated, offering little recourse to its users.
What's more, users can't use fiat money (U.S. dollars, Pounds, Euros, etc.) to transact. Instead, they offer crypto-to-crypto transactions via peer-to-peer networks. The exchanges also stand out from their counterparts for offering their users full control over funds.
These advantages are linked to lack of regulations and legislative guidance, creating challenges for federal agencies looking to investigate the exchanges for wrongdoing like fraud, money laundering, etc.
How Decentralized Exchanges Work
While centralized exchanges use third-party intermediaries, DEXs utilize peer-to-peer networks to perform cryptocurrency trading. Centralized exchanges connect crypto buyers with sellers. This has notable disadvantages.
Disadvantages of Centralized Exchanges
- Owned and run by private third parties who oversee all transactions, store client details, and play a custodial role which requires unmatched independence. However, the independence of the intermediary can't be guaranteed.
- Customers have less control over their funds
Advantages of Decentralized Exchanges
DEXs solve the above disadvantages of centralized exchanges. Their main pros include:
- They eliminate third-party intermediaries with peer-to-peer networks
- They don't play a custodial role allowing users full custody of their private keys and assets
DEXs allow direct transactions from one user to another based on smart contracts with special conditions that automatically execute when certain predefined events occur or fail to occur. The fact that DEXs don't have an authority managing custody of funds or overseeing transactions comes with pros and cons. Full custody/control of funds comes with cons if a user isn't responsible. Users unable to secure their wallets risk losing their funds.
How Do I Use a Decentralized Exchange?
Using a decentralized exchange is easy. The exchanges don't have complex sign-up processes like centralized exchanges. In fact, you don't need to sign-up to use DEXs. The first step is deciding the decentralized exchange you wish to use.
DEX users just need a wallet that works with smart contracts. The wallet should also meet the compatibility requirements of exchange and token. Once this is the case, the wallet can be funded with the required tokens, and the user can start peer-to-peer trading. Anyone with a computing device (like a smartphone, PC, laptop, etc.) and internet can use decentralized exchanges.
Decentralized Exchange Regulation
DEXs are a regulatory burden due to their nature. Federal agencies like the SEC have trouble regulating the exchanges. Since they give all transaction and funds control to users, which regulators don't like. In fact, most federal agencies believe DEXs should be subjected to regulations like centralized exchanges.
However, DEXs argue that since they don't do any custodial duties or fulfill brokerage functions, they shouldn't be subjected to regulations like centralized exchanges. Currently, regulators can't impose existing regulations on decentralized exchanges due to their differences from centralized exchanges. Most importantly, they may be no need to regulate DEXs in the first place.
Examples of DEXs
Exodus is a good example of a DEX. The exchange supports unlimited trading for peer-to-peer cryptocurrency to cryptocurrency trades. Like typical decentralized exchanges, Exodus doesn't track trading activity for its users or hold user funds. Exodus users can also trade without completing identity verification or providing personal information to sign up/create an account.
Other examples of decentralized exchanges include Bancor Protocol, WavesDex, AirSwap, Kyper Network, and EtherDelta. Since DEXs don't hold user funds, they don't require insurance. The exchanges give 100% responsibility to their users. It's, therefore, up to a user to choose the exchange they want. DEXs gain popularity in several ways, among them through their coin offerings. A DEX that offers a wide coin variety is bound to attract more users. DEXs also market themselves by offering rewards for staking.
Disadvantages of Decentralized Exchanges
The most notable cons of using DEXs are the high network fees involved and restriction to trading crypto for crypto. If you want crypto and you have fiat currency, you should consider centralized exchanges.
Help With Decentralized Exchanges
A decentralized exchange will offer more control over user funds without a third-party in-between. However, this gives federal agencies the impression that DEXs don't want critical responsibilities that reduce instances of wrongdoing like crypto fraud, money laundering, terrorism financing, and other crimes.
From a regulator's perspective, DEXs create uncertainty and inconsistency, creating a need to watch them closely and push for regulations such as those used to regulate centralized exchanges.
At Blockchain Lawyer, we specialize in helping individuals and entities avoid the uncertainties and inconsistencies of dealing with decentralized exchanges. We have a dedicated team of experts (consultants and blockchain attorneys) who advise on the pros and cons of decentralized exchanges, the probable future regulatory landscape and offer defense against federal accusations.
Talk to us. Claim your free decentralized exchange consultation now.