Decentralized Exchange Development

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Why build a Decentralized Exchange

The implementation phase can vary in its terms – it depends on the complexity of the system’s functionality. When delving into how to create decentralized exchange, you should understand that every model reflects the requirements of each software type. Put it in practice, small projects should opt for the monolith one, while the modular architecture is appropriate for moderate software, and the distributed option will be the most suitable path for vast DEXs.


An Offer can be fully or partially filled; if it’s not fully filled right away, it becomes a passive Offer object in the ledger for the remaining amount. Later on, other Offers or Cross-currency payments can match and consume the Offer. Because of this, Offers can execute at better than their requested exchange rate when initially placed, or at exactly their stated exchange rate later on . While these requirements are helpful in preventing unlawful and abusive uses of the order book, these requirements may raise concerns about transaction privacy, open accessibility, and user experience. To comply with milestones and design features of a higher sophistication, your project will need more time and human resources which also affects the cost. The report-generating algorithms will update you to be aware of the current market conditions and tendencies, enabling a proper plan for further platform development.

Why build a Decentralized Exchange

In this sense, security and privacy emerge as intertwined entities, and DEXs optimally uphold both ends for crypto-users. Above all, the ecosystem perceives traders and providers as autonomous self-sovereign entities, which stands true to the founding principles of the blockchain-cryptocurrency domain. Bancor also offers a cross-chain liquidity protocol, enabling users to trade tokens across different blockchain networks. The platform has a user-friendly interface and has been a key player in the decentralized finance space since its launch. One of the biggest challenges facing DEXs is the lack of liquidity compared to centralized exchanges. Because the number of users and assets available for trading is limited, it can be more difficult to find buyers and sellers for a particular asset.

How to Make a DEX: Cleveroad Experience in DeFi

A decentralized exchange is a cryptocurrency exchange which operates in a decentralized way, without a central authority. Whether or not DEXs are right for you will depend on your individual needs and preferences. If you are new to cryptocurrency or prefer a more user-friendly platform, a centralized exchange may be a better choice.

  • This will provide a drop-down menu with three different alternatives, and for this tutorial, we selected the “Mainnet Server” option.
  • It’s time to move forward and consider the software development life cycle indispensable in terms of how to create a DEX.
  • Then, we will show you how to build your decentralized cryptocurrency exchange’s header.
  • As a decentralized system, the XRP Ledger does not have any information on the actual people and organizations behind the accounts involved in trading.
  • Its core product is designed to function gasless and focused on aggregating liquidity from multiple protocols.
  • Securities and Exchange Commission over operating an unregistered securities exchange.

Tangent is another popular exchange that’s live on the Hedera network, offering retail users the ability to trade assets and contribute to liquidity pools. Over 100 million investors visit these decentralized platforms, and there is over $4 billion of volume on DEXs daily. Many users prefer decentralized exchanges over centralized exchanges due to their enhanced privacy. In this tutorial, you’ll combine your JavaScript proficiency with the power of Moralis and the 1inch aggregator to build your own instance of our example cryptocurrency DEX.

The crypto owners can actually invest their cryptos to provide liquidity in a liquidity pool. In exchange for providing liquidity, they’ll earn money from fees on the exchange using AMM. The decentralized exchange software or decentralized exchange applications are digital applications or programs that exist and run on a blockchain or peer-to-peer network of computers instead of a single computer.


Users must decide on the level of trust that is necessary for their personal use cases for a decentralized exchange. On centralized exchanges, all user orders are aggregated, and users are able to submit market orders and limit orders. However, there are decentralized exchanges that enable users to send and receive BTC to other blockchains. Transactions are settled directly between traders, there is no central authority collecting user data.

Why build a Decentralized Exchange

DEXs can be more complex than centralized exchanges, as they often require a deeper understanding of blockchain technology and smart contracts. Additionally, users must manage their own private keys, which can be difficult for those who are new to cryptocurrency. Many new cryptocurrencies may only be available for purchase or sale through decentralized exchanges, given that centralized exchanges have been slow to list new tokens due to regulatory risk. Therefore, many cryptocurrencies may only be attainable and tradable over decentralized exchanges. However, a decentralized exchange would not be practically useful for users if it did not have robust order books or other mechanisms that enable users to transact cryptocurrencies without significant price slippage. Many cryptocurrencies issued in 2017 and 2018 are ERC-20 tokens; in order to purchase these tokens, one must use an decentralized exchange protocol that is compatible with the ERC-20 technical standard, such as 0x or IDEX.

Building the Header of the Decentralized Cryptocurrency Exchange

Using an Ethereum on-chain order book would likely incur expensive transaction fees and debilitating wait times. For this reason, four of the most prominent decentralized exchanges in Ethereum—0x, AirSwap, EtherDelta, and IDEX—employ off-chain order what exactly Is a decentralized cryptocurrency exchange books. As of October 2018, 0x, AirSwap, EtherDelta, and IDEX support ERC-20 tokens. While decentralized exchanges have many advantages, they can also have some drawbacks such as lower liquidity, higher trading fees, and less trading pairs.

As with all changes to the XRP Ledger, you need to send a transaction to make a trade. An Offer is effectively a limit order to buy or sell a specific amount of one currency for a specific amount of another. When the network executes an Offer, if there are any matching Offers for the same currency pair, they are consumed starting with the best exchange rate first. Lastly, some users may want to minimize trust in the security, miners, and validators of the underlying distributed ledger.

Both funds and users’ data are recorded on the blockchain—that is, stored on the distributed ledger, rather than in centrally located servers. As such, the advantages of DEX are largely a courtesy of this architecture. AMMs often involve a minimal trading fee that cumulatively accumulates in the reserve. One, it maintains a stability in the pool’s overall volume, thus curtailing volatility due to individual trades.

What are the Types of Decentralized Exchanges?

However, if you prioritize security, privacy, and control over your assets, a DEX may be the better option. DEXs offer several benefits over centralized exchanges, including greater security, privacy, and decentralization. However, they also face several challenges, including limited liquidity, complexity, and slower processing times. Regarding security, DEXs offer greater security compared to centralized exchanges, as there is no single point of failure that can be targeted by hackers.

For an efficient outcome, it’s worth collecting information about the market, its big players, common challenges, and the audience’s needs. We at Arounda have worked with crypto-related products of different complexity. The following guide on creating a decentralized exchange is based on our team’s experience and will provide you with some useful insights.

Tutorial: How to Build a Decentralized Cryptocurrency Exchange

From ideation and discovery, through product development, to post-launch support, we are ready to help you every step of the way. The next stage is where we design the platform’s architecture, which is key for identifying how the different parts of the product fit together. This part is key for determining how the different layers – backend, front end and user interface – interact with each other.

The primary feature of a DEX order book is that it presents particular Buy/Sell orders from individual users. That is, it doesn’t aggregate multiple orders into one and requires the trader to identify orders from the counterparty with whom they wish to trade. They automate the order matching mechanism, thereby eliminating centralized market makers. Furthermore, DEXs mostly use on-chain order books, wherein transactions are recorded on the blockchain at the time of trade. However, in partial DEXs, the order book may also be hosted off-chain, which instills a centralized element despite enabling direct counterparty interactions. We help individuals, exchanges, mining pools, token issuers, investment funds, governments and institutions to access, trade and manage cryptocurrencies and digital assets optimally.

The initial protocol of the 1inch Network is a DEX aggregator solution that searches deals across multiple liquidity sources, offering users better rates than any individual exchange. In just over two years the 1inch DEX aggregator has reached 2M users and surpassed $150B in overall trading volume. Multichain is a fully decentralized cross chain swap protocol, based on Fusion DCRM technology, with automated pricing and liquidity system. It allows you to buy and sell tokens using gas-less orders that are settled peer-to-peer among its users or into any on-chain liquidity source while providing MEV protection. Balancer Exchange allow you to swap ERC20 tokens trustlessly across all Balancer’s liquidity pools.

Meanwhile, DEX platforms have no limits and may include any tokens as soon as they appear on the blockchain. This initial stage of crypto exchange development is crucial as it helps to define the project goals and requirements. Depending on your project’s specifics, you might need to conduct user research, A/B testing, user interviews, etc.

As a rule, experienced companies offer several variants of the design concept based on customer requirements. The concept to create DEX exchange of this type requires standalone, efficiently operable pitches. To illustrate, a wallet section, a user section, an exchanging system, and others. When you decide to create your own DEX with a modular architecture, you provide for excellent performance with a high workload in advance. For this, it would also be wise to make a responsible choice of the hosting vendor.

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