Role of DEX Aggregators in DeFi
από LCX Team ·
DEX Aggregators are among the latest advancement in the burgeoning DeFi market, providing traders with access to deep liquidity and better pricing.
While everyone else had an unexpectedly awful year in 2020, the decentralized finance (DeFi) market had a fantastic year. Not only has money been poured into DeFi protocols, but also innovations to improve the cryptocurrency trading experience have emerged. One of these innovations is DEX aggregators.
What Are DEX Aggregators?
DEX is an abbreviation for decentralized exchange, which is a cryptocurrency trading platform based on blockchain technology that enables users to keep control of their funds while exchanging one token for another.
Decentralized exchanges (DEXs) offer greater privacy and security than their centralized counterparts, which has resulted in a significant rise in activity in recent years.
The most notable decentralized trading platform is Uniswap, which works on the Ethereum network that enables crypto traders to convert ERC20 tokens directly through their Ethereum wallets via a user-friendly web-based interface.
The problem with decentralized exchanges is that most of them lack liquidity, especially for smaller tokens, finding it challenging to enter and exit larger positions without significant slippage.
DEX aggregators were created to address this issue.
DEX aggregators are financial protocols that enable cryptocurrency traders to access a range of trading pools from a single dashboard.
For example, if you want to buy LCX on the Ethereum blockchain using ETH, you can use DeFi terminal Aka fire salamander, an Ethereum-based DEX aggregator.
You enter the cryptocurrency trading pair you would like to convert into the trading application. The liquidity aggregator then uncovers the best possible price for you to execute your order across all available platforms.
While the currently available DEX aggregators differ in some ways, they all have a user-friendly interface that needs you to connect your wallet and perform a single trade on a web-based application.
Why Traders Like DEX Aggregators
DEX aggregators, also recognised as liquidity aggregators, offer a number of advantages that have made them very famous among active traders. In fact, DEX aggregators have become so popular that they accounted for roughly 20% of decentralized trading volumes by mid-2020.
So let’s take a look at the advantages of liquidity aggregators.
1- DEX aggregators offer a larger pool of liquidity to traders who wish to trade huge amounts of digital tokens.
If you want to convert a significant position in a currently issued token into a stablecoin, for instance, due to a lack of liquidity, you may find it difficult to do so on just one decentralized exchange. Nevertheless, if you utilize a liquidity aggregator, you are much more likely to find the liquidity you require to exit your token position without incurring excessive slippage.
2- A DEX aggregator will typically provide a better execution price than a single DEX. Aggregators are designed to help traders fill trades at the highest possible level across a variety of liquidity pools. As a result, for price-sensitive investors or traders, using a liquidity aggregator rather than a single decentralized trading platform makes sense.
3- DEX aggregators, like “traditional” decentralized exchanges, add a layer of privacy to crypto trading that centralized exchanges do not provide.
In contrast to centralized exchanges, which typically require users to complete a KYC onboarding procedure, everyone with a crypto wallet and an internet connection can sign up onto a liquidity aggregator online and exchange one digital asset for another. There will be no need for ID verification, and no paperwork will be required.
4- DEX aggregators are normally non-custodial exchange platforms, which also means traders retain complete control over their funds.
Unlike centralized exchanges, which require you to deposit coins and thus give up your private keys for the duration of their storage on the platform, liquidity aggregators permit you to trade directly from and to your crypto wallet.
5- Finally, liquidity aggregators enhance the decentralized trading experience by providing user-friendly dashboards where a few clicks are all that is required to trade millions of digital tokens in seconds.
Given the long list of advantages that DEX aggregators provide, it should be unsurprising that several leading projects in this space have recently secured millions in funding, and that new market entrants are showing up on the scene.
