Here at Token Metrics, we understand that our most valuable asset is you, our audience.
With your help, we have put together a guide to the Top 3 Decentralized Exchanges of 2021, as voted upon by you.
So sit back, relax, and enjoy the Moon Awards.
What is a Decentralized Exchange (DEX)?
A decentralized exchange or DEX works the same way as a regular crypto exchange, but with one crucial difference, it requires no central authority. A DEX allows a user to execute crypto trades without a central authority, which removes the need for users to give up custody of their tokens.
DEXes remove this need by allowing cryptocurrency holders to trade directly with each other on a peer-to-peer basis.
Unfortunately, the decentralized nature of DEXes comes with its own set of challenges that often require the exchange to sacrifice speed, pair variety, and sleek interfaces. DEXes can also not conduct trades between crypto and fiat currencies because fiat currencies inherently require an intermediary.
These tradeoffs are well worth it for DEX users, as sacrificing these features allows DEXes to offer more security and anonymity.
For many users, trading crypto can appear very precarious as the horror stories of hacking and security lapses have resulted in losses in the multi-million dollar amount. DEXes address these concerns by removing the vulnerable central authority that, when hacked, resulted in devastating losses.
Top 3 Decentralized Exchanges of 2021
1) Uniswap (UNI)
“Uniswap will undoubtedly be remembered as everyone’s first experience with decentralized exchanges. UNI V3 gears towards institutions, so they are well-positioned. Once ETH moves to proof of stake, and gas fees are a thing of the past, UNI may regain its popularity across the board. ” – William Noble, Chief Technical Analyst, Token Metrics
Arriving in 1st place with just under 45% of the total vote is the decentralized exchange Uniswap. This result comes as no surprise as Uniswap was also featured in our previous Moon Awards category of Best DeFi Projects of 2021 and has a 24-hour trading volume of over $1.5 billion.
Uniswap launched in November of 2018 and was recently replaced by Uniswap Version 3 in May of this year. Uniswap Version 3 is a significant upgrade over Version 2 as it added many new features, including concentrated liquidity and multiple fee tiers.
The Uniswap DeFi project is a protocol built on the Ethereum network for swapping ERC-20 tokens. Unlike centralized exchanges, Uniswap is designed to function as a public good, meaning that it is a platform for the community to trade tokens without fees or intermediaries.
Uniswap’s primary distinction from other DEXes is a pricing mechanism called the “Constant Product Market Maker Model.” This model means that any token can be added to Uniswap by funding it with an equivalent value of ETH and the ERC-20 token traded.
Absolutely any ERC-20 token can be listed on Uniswap with no permission required.
In September of 2020, Uniswap launched the UNI token by airdropping 400 UNI tokens to every wallet address that had interacted with the Uniswap protocol before September 1. As a governance token, UNI entitles holders to a vote in how the protocol runs.
It is important to note that Uniswap plans to distribute a capped total of 1 billion UNI over four years, with 60% reserved for community distribution, 21.5 % earmarked for Uniswap employees, and the remaining 18.5% allocated to investors and advisors.
Uniswap is a genuinely unique DEX, and with the recent release of Uniswap Version 3, the project will continue its reign as one of the best DEXes in the crypto space.
Token Metrics’ Analysis of Uniswap
2) 1inch Network (1INCH)
“Mike Novogratz and Galaxy Digital back 1-inch. 1-inch is a good aggregator DEX which means it helps people find the best prices and trade easily. 1-inch will likely be the way people from Coinbase will enter the decentralized trading universe. It’s easy to use.” – William Noble, Chief Technical Analyst, Token Metrics
After being narrowly edged out by Uniswap, 1inch Network arrives in 2nd place with roughly 40% of the total vote as one of the best decentralized exchanges. Like Uniswap, 1inch Network was also featured in our previous Moon Awards category of Best DeFi Projects of 2021.
With the rise of DeFi and decentralized exchanges, 1inch has quickly risen to the top as the premier DEX aggregator in the space.
What is a DEX aggregator? Well, think of it this way. In DeFi, anyone can trade on a decentralized exchange as traders only need to connect their wallets and therefore never give up access to their funds or information.
There are multiple decentralized exchanges, though, and they are all structured in slightly different ways and sell cryptocurrencies for slightly different prices. Now with slightly different prices, how do investors get the best price available?
This problem is where 1inch comes in as a DEX aggregator. 1inch scrapes the biggest decentralized exchanges for the lowest prices and reroutes its customers’ trades to ensure the best prices.
Sergej Kunz and Anton Bukov founded the 1inch Network in 2019 during ETHNewYork’s Hackathon. Since then, the project has raised roughly $15 million in funding from companies such as Binance Labs, Galaxy Digital, and Pantera Capital. You can watch our interview with the 1inch Network co-founder Anton Bukov here!
The 1INCH token was not available initially, though, as the token launched on Christmas day of 2020. The token functions as a governance token that holders use to vote on how the platform runs. The primary way to earn 1INCH tokens is through providing liquidity to the 1inch Liquidity Protocol.
Token Metrics’ Analysis of the 1inch Network
3) PancakeSwap (CAKE)
“PancakeSwap was an interesting gimmick when ETH gas fees were really high. I’m not sure the crypto-verse will embrace a centralized entity for trading all coins on a long-term basis.” – William Noble, Chief Technical Analyst, Token Metrics
Arriving in a distant 3rd place with just under 5% of the total vote is the DEX, PancakeSwap. Founded by anonymous developers, PancakeSwap started very slowly but has skyrocketed in popularity since.
Like a few other DEXes in the space, PancakeSwap is a Uniswap clone created by copying Uniswap’s open-source code.
What makes PancakeSwap different from Uniswap is that instead of operating on the Ethereum blockchain, PancakeSwap is powered by the Binance Smart Chain. This difference allows PancakeSwap users to trade BEP-20 tokens directly and interact with dApps on the Binance Smart Chain.
PancakeSwap’s 24-hour volume sits at around $452 million, and one of the reasons for the DEX’s popularity is the Ethereum network’s steep hike in gas fees from earlier this year.
Like Uniswap, PancakeSwap is clean, minimal, and easy to use. The exchange supports many standard wallets, including MetaMask, Math Wallet, and the Binance Chain Wallet. The only complicated part comes when converting your ERC-20 tokens to BEP-20 tokens using the Binance Bridge.
At the time of this article, PancakeSwap allows users to swap 290 supported tokens.
Token Metrics’ Analysis of PancakeSwap
Honorable Mention: Bancor (BNT)
“Bancor is the only AMM that has solved impermanent loss and Single token exposure. But holders have the option to earn an average of 55% APY as of today through their liquidity mining program. Bancor is my personal favorite DEX in the space.” – Diego Lara, Partner, Token Metrics Ventures
After being narrowly edged out by PancakeSwap with a margin of just a few votes, Bancor is more than worthy of an honorable mention in our top DEX category. Ran by the Swiss-based Bancor Foundation, the Bancor network is a token swapping and yield farming platform powered by the native BNT token.
The unique thing about Bancor that separates the exchange from other DEXes is that its automated market maker (AMM) does not enforce the standard 1:1 basis for providing liquidity. This distinction means that Bancor does not require users to provide equal portions of two tokens in a liquidity pool.
For example, you can deposit ETH or DAI in an ETH/DAI liquidity pool on Bancor. Uniswap, on the other hand, forces you to deposit both assets if you want to yield farm.
Bancor also provides its own liquidity protection feature similar to coverage insurance. With this feature, traders can protect their DeFi movements by staking certain assets.
Like other DEXes, Bancor has a governance model as well that is powered by the BNT token. Bancor’s governance model is actually one of the most active DAOs in the space and is matched only by MakerDAO.
Bancor hosts roughly $844 million in collateralized assets and a 24-hour trading volume of just over $50 million.
Token Metrics’ Analysis of Bancor
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