ALGORAND Decentralized Exchange, ALGODEX.

Decentralized exchanges (DEX) are a type of cryptocurrency exchange that allows for direct peer-to-peer cryptocurrency transactions to take place online securely and without the need for an intermediary.

In transactions made through decentralized exchanges, the typical third-party entities which would normally oversee the security and transfer of assets (e.g. banks, stockbrokers, online payment gateways, government institutions, etc.) are substituted by a blockchain or distributed ledger. Some common methods of operation include the use of smart contracts or order book relaying, although many other variations are possible and with differing degrees of decentralization.

Because traders on a decentralized exchange often do not need to transfer their assets to the exchange before executing a trade, decentralized exchanges reduce the risk of theft from the hacking of exchanges, but liquidity providers do need to transfer tokens to the decentralized exchange. Decentralized exchanges can also prevent price manipulation or faked trading volume through wash trading, and are more anonymous than exchanges that implement know your customer (KYC) requirements.

There are some signs that decentralized exchanges have been suffering from low trading volumes and market liquidity. The 0x project, a protocol for building decentralized exchanges with interchangeable liquidity attempts to solve this issue.

Degrees of decentralization.

A decentralized exchange can still have centralized components, whereby some control of the exchange is still in the hands of a central authority. A notable example being IDEX blocking New York State users from placing orders on the platform.

In July 2018, decentralized exchange Bancor was reportedly hacked and suffered a loss of $13.5M in assets before freezing funds. In a Tweet, Charlie Lee, the creator of Litecoin spoke out and claimed an exchange cannot be decentralized if it can lose or freeze customer funds.

Operators of decentralized exchanges can face legal consequences from government regulators. One example is the founder of EtherDelta, who in November 2018 settled charges with the U.S. Securities and Exchange Commission over operating an unregistered securities exchange.

Uniswap, which is built upon the Ethereum blockchain, has the largest trading volume of any DEX.[13] It deployed its V3 to the Ethereum mainnet on May 5th 2021.

Order Book Decentralized exchanges

An order book compiles all the buy and sell orders of assets in a single place. The depth of an order book is determined by the price spread between the buy/sell orders. This further determines the price of a particular asset on a particular exchange.

In most of the order book DEXs, the users’ assets remain off-chain but the information is maintained on-chain on the order books for quicker trades.

Derivative product-based DEXs let users trade derivatives in a decentralized environment.

Order book DEXs are slower compared to Swap DEXs. To overcome this, a matching engine for efficient buying and selling is designed. This helps overcome the order matching speed issues.

The speed of the trade can also be improved by matching the orders on the on-chain however moving the funds off-chain always.

On-chain smart contracts can be used for order matching. This minimizes the risk of someone manipulating the orders.

Privacy of the transactions on DEXs can also be improved by using zk-SNARKs to validate transactions.

Web-based APIs can be used to give users a familiar experience.

Decentralized Margin trading can also be facilitated where DEX users can borrow funds and amplify their returns 3X,10X, or even 100x.

ALGODEX.

Algodex is a highly decentralized exchange with the orderbook completely on the Algorand blockchain itself.

Algodex Interface.

Algodex uses limit orders to conduct its trades and has 4–8 second trading times and full decentralization. The order book exists on the blockchain, making it unique in the DEX space. The backend servers are customized blockchain indexers that provide caching of the data which is then served to the users. Algodex is one of the most decentralized limit order exchanges in existence.

Algodex automatically allows trading for any ASAs, including newly issued ones. The users’ funds, including open orders, are held in external wallets and escrow accounts owned by the users. The exchange operators do not possess technical access to any users’ funds, which gives users security and confidence in their transactions.

Algodex Testnet was released in September, 2021, and its Mainnet release in Q4 2021. . The exchange plans on supporting all major languages and will facilitate trading globally on its platform.

How to Use the Algorand Decentralized Exchange, ALGODEX.

Initial Setup.

  1. In order to get started on Algodex, you’ll need to set up a My Algo wallet at https://wallet.myalgo.com/.
  2. Connect to Testnet on My Algo in the top right-hand corner.
  1. Go to the Algorand Testnet Dispenser at https://bank.testnet.algorand.network or https://testnet.algoexplorer.io/dispenser and enter your My Algo wallet address to claim some free Testnet algos.
  2. Connect your My Algo wallet to http://testnet.algodex.com in the top right-hand corner of the Algodex “Trade” page where it says “Connect Wallet”.

How to Trade.

To place a limit order on Algodex you must first decide which Algorand Standard Asset (ASA) to trade. Search between Testnet ASAs in the top left-hand search bar. ASAs can be searched for via the asset ID or the asset name.

Once you decide the ASA to trade, find the order selection tab on the right-hand side of the page.

  1. Decide the “Price” (denominated in ALGOS) to execute the trade at.
  2. Next, the number of assets to purchase in the “Amount” field. Note: The “Total” field will be auto-calculated to show you the total price in algos.
  3. Press “Buy or Sell” at the bottom of the page to execute your order.
  4. **Please disable your popup blocker**

The “My Algo” signing window will appear for you to sign the transaction from your wallet. By default, you will be in “Both” mode meaning you will first take from existing orders on the order book and then make a new order for the remaining amounts. In advanced options, you can specify if you only want to place Maker or Taker orders.

Definitions

  • Maker: Create (or make) a new order on the order book.
  • Taker: Withdraw (or take) from existing orders on the order book.
  • Maker/Taker: First take from existing orders — then create a new order for the remaining amount.

After its Mainnet release, the project plans to release a token and a rewards system that incentivizes market makers.

IMPORTANT NOTE

To place trades, even sell orders, you will need to maintain a minimum balance of algos in your wallet at all times due to the Algorand protocol. The UI does not currently warn you of this. Please keep at least 10 algos in your wallet.

As we all await the launch of AlgoDex Mainnet Launch, you can familiarize yourself with the testnet and also read about the exchange from the notes above.

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