Exchanges (DEX)

A space to discuss the ‘Exchanges (DEX)’ market sector available on Token Terminal.

What are decentralized exchanges (DEX)?

Decentralized exchanges are smart contract-based exchanges that allow for permissionless trading of assets globally.

What problems do DEXs aim to solve?

It’s difficult to get initial liquidity for assets, the liquidity is often geographically siloed, and the transparency of trades is enforced primarily through regulation instead of technology.

How do DEXs solve those problems?

DEXs bring down the cost of an “IPO” to one function call. Once an asset is represented as a token onchain, it can be traded freely on a DEX, and it inherits the advantageous features of the underlying blockchain(s): global liquidity, predefined rules of operation, immutable audit trail, and open-source transparency.

Why is now the right time to build and invest in DEXs?

The DEX market was initially dominated by orderbook based solutions, most of which suffered from low liquidity. Automated market makers or AMMs that pooled liquidity emerged to solve the liquidity bootstrapping problem, and have since gone onto facilitating billions in daily trading volume. Recently, we’ve seen the rise of DEXs built on application-specific chains, these DEXs are able to modify the functionality of the underlying chain to decrease the cost of trades and increase their privacy.

What is the business model of DEXs?

The primary business model for DEXs is to generate revenue by taking a cut of the trading fees paid by traders. That is, the DEX takes a portion of the liquidity providers’ revenue.

Where can I view the current and historical (financial) performance of DEXs?

DEX dashboard: Exchanges (DEX) | Markets | Token Terminal

Methodology for DEX-specific metrics

Total value locked: liquidity deposited into the DEX’s trading pools.
Trading volume: trading volume of the assets listed on the DEX.
Fees: total trading fees paid by traders.
Supply-side fees: share of trading fees that goes to the liquidity providers.
Revenue: share of trading fees that goes to the protocol (and its tokenholders).
Token incentives: USD value of governance tokens distributed to LPs and/or traders on the DEX.
Daily active users: daily distinct addresses making trades on the DEX.

Example project documentation

Relevant links