Talking DEX: A Deep Dive into Decentralized Exchanges
Maybe you already know the news that WMT launched Cardano Dex.
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What is a decentralized exchange?
First, what is a decentralized exchange?
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How does DEX work?
DEX can also provide other services, such as: decentralized financial ecosystem, binding, minting, pledge, cross-chain exchange, etc.
The way centralized exchanges work is by having large liquidity pools to facilitate transactions.
DEX does not have this capability. However, the DEX has found a clever solution to get tokens from the community into the liquidity pool to ensure users get the best prices on transactions.
Another difference between DEXs and CEXs: centralized exchanges let you buy cryptocurrencies with fiat currency. Decentralized exchanges only allow you to exchange tokens you already own.
Therefore, most DEXs involve a"exchange"Mechanism that lets you choose which tokens you want to exchange and which tokens they want to receive.
Next, an algorithm known as an Automated Market Maker (AMM) is used to facilitate the exchange through best routing practices, ensuring the best exchange possible. Execute transactions using smart contracts, waive any fees, and add your new tokens to your wallet.
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What is a Liquidity Provider?
Liquidity providers are the lifeblood of a DEX, helping it obtain continuous liquidity inflows from the community and provide deep liquidity in its pool.
Why is deep liquidity so important? Because it helps to stabilize the price of transactions. (This is called slippage, but that's a topic for another article.)
This is where you get involved.
As a token holder, you can deposit your tokens into a pool and become a Liquidity Provider (LP).
Every time a user makes a swap on the DEX, a small fee is incurred. Part of this fee goes back into the protocol, and another part is distributed to liquidity providers.
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What is Cardano DEX?
Cardano DEX is a decentralized exchange on the Cardano blockchain.
In the Cardano ecosystem, SundaeSwap is one of the DEXs with the largest community size before launch.
Sundae's model is similar to Ethereum's UniSwap, the largest DEX in the cryptocurrency world, and their goal is to become"UniSwap for the Cardano blockchain"。
The community's willingness to provide liquidity to Sundae's LPs will be key to its success.
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What is impermanent loss?
When you provide liquidity to a pool, impermanent loss (IP) can occur.
ELI5: When you deposit tokens into a pool, the price will change with market fluctuations.
Example: You provide liquidity with ADA and WMT. This means you are entitled to certain rewards from the liquidity pool.
However, if the price of ADA goes up while the price of WMT stays the same, arbitrage traders and other market participants may change the ratio of assets in the pool to match the new ratio.
This means that if you decide to withdraw your funds, you will receive the same percentage of the pool of funds that you invested in. (For example, you will get more ADA returns than WMT).
This means that, in some cases, you are better off just holding your ADA and WMT rather than depositing into LPs.
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CEX or DEX? comparative analysis
Choose CEX or DEX? This is a philosophical question.
Is anonymity more important than buying with fiat currency? Is DeFi more important than ease of use?
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WMT has been launched on DEX!
WMT, our native Cardano token, has been launched on Cardano DEX, and you can follow us for more news about our cooperation with SundaeSwap and ADAX.
Want to be one of us and contribute to the world's mobile network? We look forward to your joining!
World Mobile (World Mobile) is a network established and operated by individuals and serving individuals. It uses blockchain technology to provide network services and digital IDs for billions of people around the world.
