Decentralized exchanges (DEXs) are typically the first and most frequent experience for most DeFi users. Inspired by Ethereum co-founder Vitalik Buterin’s concept of an “on-chain automated market maker” (AMM), DEXs like Uniswap are trailblazers in non-custodial trading through their use of user-led liquidity pools and yield farming.
Over the past year, Uniswap and other Ethereum-based DEXs such as 1inch, SushiSwap and Curve Finance have become an indispensable part of the DeFi ecosystem, fundamentally shifting the way we think about crypto-asset exchanges. However, as Ethereum faces increased congestion and high transaction, or “gas”, fees, many users have fled to exchanges on other blockchains.
Centralized exchanges and less expensive blockchains like Binance Smart Chain (BSC) have absorbed some Ethereum refugees, while challenger chains like Polygon (formerly Matic), Avalanche and Polkadot are also hosting some potentially viable alternatives to Ethereum’s costly mainchain. Below we profile some of these exciting up-and-coming DEXs.
PancakeSwap (Binance Smart Chain)
By far the most recognizable and popular up-and-coming DEX on this list, Binance Smart Chain’s (BSC’s) PancakeSwap has taken the DeFi world by storm in the last few weeks. For a brief time, PancakeSwap surpassed Uniswap by 24-hour trade volume: an impressive feat for BSC’s leading exchange platform. As a fork of SushiSwap, PancakeSwap offers a familiar user experience to those used to Ethereum DEXs as well as near-zero transaction fees.
PancakeSwap currently resembles Uniswap during the summer of 2020, in which smaller, anonymous projects raised funds for otherwise difficult launches. As with its progenitor, some of these projects have seen a high degree of success, while others have faltered. Nonetheless, BSC’s low fees and compatibility with the Ethereum Virtual Machine (EVM) are ideal for developers looking to test innovative ideas.
Similar to Uniswap’s UNI token, PancakeSwap liquidity providers farm CAKE tokens, providing extra incentives to add liquidity to the platform. PancakeSwap’s current platform balance currently sits at $3.6 billion, fast catching up to Uniswap’s $4.7 billion. However, it remains to be seen whether this growth will continue as and when Ethereum solves its congestion problem.
Layer-2 protocols are perhaps the greatest hope for Ethereum devotees at the moment. In short, layer-2 chains operate on-top of the Ethereum mainchain and function in the same way, but with drastically reduced transaction fees and higher speeds. One of the first proposed layer-2 chains was Matic (now Polygon), which uses Ethereum’s infrastructure, code and Web3 apps to create a fairly seamless and comparable experience.
QuickSwap has swiftly established itself as the preferred DEX for Polygon, and for good reason: it has over $100 million total value locked (TVL) and new daily highs in trade volume. Like PancakeSwap, QuickSwap is modeled on Uniswap for a familiar user experience and also boasts absurdly low transaction fees. Recently, though, a number of leading Ethereum chains have announced their migration to Polygon, including SushiSwap, which may place pressure on Quickswap to retain its title as Polygon’s most active DEX.
Those looking to experiment with Polygon and QuickSwap can use the ETH-Matic bridge, where it takes approximately 15 minutes to transfer assets from the Ethereum mainnet to Polygon. Unlike other layer-2 Ethereum chains, Polygon gives users free Matic tokens so they can begin interacting right away.
As a high-throughput, efficient blockchain designed for financial applications, AVA Lab’s Avalanche has had notable success since launching its mainnet. Avalanche offers low fees and fast transactions, making it an ideal host for DeFi platforms. Despite some early hiccups involving its compatibility with the Ethereum Virtual Machine, Avalanche remains one of the most promising competitors to Ethereum in the DeFi space.
Among Avalanche DEXs, there is fierce competition as Zero Exchange and Pangolin vie for the top Avalanche DEX spot. Pangolin narrowly takes the lead here with approximately $180 million TVL compared to Zero Exchange’s $44 million. Although Pangolin is the officially supported DEX for Avalanche, both have incredible upsides as fast and efficient interfaces for swapping tokens.
The primary limitation of both DEXs is the challenging process of transferring assets from Ethereum to Avalanche, however we should expect a more functional ETH-AVAX bridge soon. Currently, Zero Exchange has an edge here as it supports cross-chain transactions, unlike Pangolin.
While not particularly new, Honeyswap is worth a mention as the premier DEX for xDAI, another Ethereum layer-2 chain. Akin to Polygon, xDAI uses its own native token for gas fees (STAKE) and supports near-gasless fees. Although Polygon has recently captured the layer-2 market, xDAI’s innovations can’t be ignored.
Released during 2020’s DeFi summer, xDAI prompted users to consider the upside of Ethereum side-chains, with Honeyswap becoming one of the first DEXs to tackle the inherent complexities of AMMs. Honeyswap illustrates the simplicity that layer-2 DEXs can achieve by allowing users to connect to the xDAI network through Metamask, albeit by bridging STAKE tokens to the xDAI network.
Overall, xDAI is a formidable contender as a layer-2 protocol if Ethereum can’t solve its pressing issues. It’s difficult to say which layer-2 chain will capture the larger market share, but xDAI’s team and community have made a convincing effort to publicize and extol its virtues, and this shows no signs of slowing down.
Lattice Exchange (Constellation)
Lattice Exchange is an upcoming DEX hosted on Constellation’s mainnet. Lattice Exchange will enable users to seamlessly transfer their crypto assets across multiple blockchains, making the difficult task of cross-chain liquidity a reality. Cross-chain token swaps could be enormous for the DeFi space by giving users the ability to move assets between otherwise unconnected networks. Lattice Exchange will be launching soon and could see significant usage right away. Moreover, Constellation’s directed acrylic graph (DAG) framework, like IOTA and Nano, provides the fastest transaction speeds in the crypto space.
Like Lattice Exchange, Polkaswap has not launched yet, but will be expected to arrive with the Polkadot mainnet. Polkaswap will likely be the chief DEX of the highly anticipated Polkadot ecosystem, one which DeFi users are eagerly anticipating.
Polkadot’s architecture allows for low transaction fees and interoperability across multiple blockchains, though its full functionality and capability is, as yet, unclear. Polkaswap will use several Polkadot protocols, including Kusama and SORA, to provide a unique experience that could potentially supersede current Ethereum offerings.
Indeed, Polkaswap is certainly one to watch over the next few months as DeFi becomes increasingly competitive, and you can experiment with the testnet now.