Decentralized Finance (DeFi) is a term that describes financial products and services built on public blockchains.
One example of a DeFi product is a decentralized exchange (DEX). A DEX is a peer to peer marketplace where crypto transactions are completed directly between traders using a smart contract. The opposite of this is a centralized exchange (CEX) where crypto transactions are completed between a third party and traders.
Unlike traditional exchanges, DEXs allow users to swap assets without third parties facilitating the transaction or taking control of funds.
The Uniswap Protocol offer several benefits over centralized exchanges (CEXs). Key benefits include decentralization, self custody, transparency, and greater accessibility.
Decentralization and Self-Custodial:
Unlike centralized organizations that operate CEXs, the Uniswap Protocol operates on a decentralized network, with no single organization controlling the exchange.
Decentralization has two main advantages:
- The smart contracts that make the Uniswap Protocol cannot be changed once deployed, meaning no one can change the rules.
- Funds are completely self-custodial. You always remain in control of your assets. No third party can take them.
DEXs are more transparent than centralized exchanges. Not only is all the code open source and publicly available, but the Uniswap Protocol operates on public blockchains where all transactions and smart contract interactions are recorded on a transparent and immutable ledger.
Anyone can access and verify these transactions, ensuring transparency and accountability.
Another benefit of the Uniswap Protocol is greater accessibility. Anyone can trade any token or create a market for any token.
In this way, DEXs are more accessible to a wider range of users, including those who may not have access to traditional banking services.