Since the dawn of the Internet, the amount of content we are exposed to daily has increased dramatically. A study published in 2019 estimated that the average Western consumer is exposed to 5000 or more online advertisements per day! And that’s just ads. It doesn’t even touch on our emails, video platforms, podcasts, social media posts, pins, tweets, shares, and threads. For those of us who work online, we often need online content aggregators to make it manageable by allowing us to define a custom feed that includes our favorite online spots.
Updated August 13, 2020
In the world of cryptocurrencies, the aggregator’s definition has morphed into something entirely new. Let’s first define it in the traditional sense. Then, we’ll introduce you to the amazing aggregators of blockchain.
Note: This article describes exchanges that are unregulated or self-regulated. Quite possibly there is algorithmic regulation. We are not financial or legal advisors, so please do your own research. Seek out professional advice and proceed with caution.
Aggregators are web applications that automatically collect related content and/or data from many online sources. They collect the data and put it all into one place to make things easier and more efficient for end-users.
Keywords and other metadata are targeted when setting up aggregator programs. For instance, you could easily aggregate articles on “cryptocurrency news” or “stock trading tips” by using Google Alert’s. Then you could have links to the articles sent automatically to you in one email each day, like this:
When you open one of the emails, you see the aggregated data with a snippet and links:
So aggregator applications collect the data according to the aggregator function and chosen metadata and send it automatically to the users who subscribe to it.
Another way to aggregate online content is to use APIs. Web developers can tap into another website using that site’s Application Programming Interface, or API. These online software “bridges” connect applications to each other to share data.
There are also API aggregators. As an example, say you wanted to set up a newsfeed for your subscribers. Let’s choose the topic of artificial intelligence. You could aggregate data from all the relevant AI blogs. You could then deliver a summary to your audience with links to all the latest AI news stories in a given week.
A news aggregator in action
In the image below, you’ll see the aggregated news feed from our HedgeTrade app. Notice we’ve pulled from multiple blockchain technology news sites for crypto- and finance-related articles. Any user can simply click on the article to be led to the original source so they can read further.
Now that you have an idea about what aggregators are, it’s time to turn to the cryptosphere. Let’s define decentralized exchanges, or DEXes, and then put it all together to learn how DEX aggregators are the future of Decentralized Finance (DeFi).
What is a DEX?
DEX stands for “decentralized exchange” and refers to a platform that enables the peer to peer trading of digital assets, also known as cryptocurrencies. A DEX runs on a decentralized or ‘distributed’ database, called a Blockchain.
A bit on blockchain…
Entries on a blockchain ledger are verified by users that run nodes, which involves specialized computer hardware and software that hook into the blockchain network. Blockchains are transparent databases that are also unchangeable (at least without all the users knowing and at an exorbitant cost) and cryptographically secured by the hundreds or thousands of computer ‘nodes’ (basically anyone in the world who has downloaded the software)that support the network globally. Blockchain transactions settle in near real time, and the transaction data is immediately available on the Blockchain Explorer.
Each DEX has many different trading pairs available for exchange, for example, BtC-ETH or XLM-USDT. Because the trades are happening on a decentralized exchange using a blockchain ledger, they happen very quickly, cheaply, and from any location or time zone. They are also completed with no need for a payment processor, broker or bank.
The DEX Explained
A DEX is a digital currency exchange that runs on a blockchain. Users sign up to a DEX via a web or mobile app. Then they can use it to exchange digital assets anonymously with other traders all over the globe, 24/7, and in real-time. Now, in the case of DEX aggregators, traders have access to the cross-blockchain interoperability achieved by DEX aggregators. By syncing into multiple DEXes, the DEX aggregator pulls data from multiple DEX order books, scanning for the best cryptocurrency prices.
Why is this good?
Liquidity, liquidity, liquidity.
Stand alone DEXes have historically struggled to gain traction to provide proper liquidity for crypto token pairs. Because of their decentrlized nature, with no central authority running things, and combined with an often too-technical user interface, DEXes have not been competitive with centralized exchanges like Binance and Kraken. What these DEX aggregators do is for one, create an easier DEX trading experience, and two, combine data in order to scan for best prices. With better usability and more real time information, traders have more reasons to use a DEX and better chances of getting their orders matched. The more transactions on a DEX, the better the liquidity.
How are DEXes different from centralized exchanges?
In contrast to traditional centralized asset exchanges, such as NASDAQ or the Stock Exchange of Hong Kong, a DEX uses blockchain technology to make use of a transparent yet privacy-encouraging financial database. This is a “distributed database”, which is computationally run by participants from all over the world (miners, node runners, and stakers). Each DEX uses a certain blockchain, for instance Waves DEX is built on its own blockchain, and Bancor runs on the Ethereum Blockchain. Additionally, many of these DEXes, including Waves and Stakenet, are moving toward blockchain interoperability, and so able to connect to multiple blockchains.
All network participants in each DEX share their computing power, making this type of database very different from, say, what the New York Stock Exchange uses. The NYSE database, which includes transaction information and identity confirmations, is a centralized system that operates on banker’s hours and is strictly regulated. While all the users of a DEX are not necessarily network participants, they do get to enjoy the many benefits stemming from a distributed database.
Why decentralization matters
To understand the importance of decentralized exchanges, let’s compare them to NYSE, NASDAQ and other exchanges, which use centralized servers that can be vulnerable for several reasons:
If a server goes down or loses internet service, then all users connected to that system must wait for it to come back up. With a blockchain ledger, which is used by DEXes, the server cannot go down because it lives and is constantly updated on hundreds or even thousands of computers all sharing the software. If one goes down, the others all continue to run the program. And when that one problem computer is back up and running, a real-time version of the database automatically updates that “node”.
The second reason decentralization matters is that the financial and transactional data that a centralized server holds creates a honeypot situation. Since centralized exchanges like the NYSE or Coinbase centrally store all their user data and often the assets themselves, a hack could be disastrous. Which database do you think a hacker would be more likely to try and hack? One or a few centralized computers with loads of financial data, or a thousand computers all running the same software in real-time? Which would be an easier target and more attractive financial data honeypot for hackers? Even in the case of CoinBase, who has rolled out its own cold storage (but holding your keys, so not your coin), they are using new and perhaps unproven technologies to store your valuable crypto assets.
The databases for centralized entities are controlled by the company behind it and information can be corrected, manipulated, or changed. Not so for DEXes. Decentralized exchanges run on blockchain algorithms and consensus mechanisms. It is these things that control the data, not a human or a group of humans. It is nearly impossible and completely infeasible to change information on a blockchain ledger. All transaction information is connected by hash functions. This means that in order to change one transaction, you must change every transaction in the blockchain’s history – and every Network participant will know about it.
One final important aspect to note about DEXes is “custody”. Decentralized exchanges do not generally have access to your crypto assets. While they may use a server to match orders, you are still in control of your cryptocurrencies. You also remain the owner of your private keys. As such, a hacker will find it more difficult to hack into your digital assets from a DEX that enables self custody, compared with centralized crypto exchanges that hold crypto assets. These centralized crypto platforms have historically have been victims of hacks over and again.
Why is an aggregator needed for DEXes?
Early DEXes like NXT and WAVES required quite a bit of technical savvy to use. Remember, a decentralized exchange is still a fairly new concept. Additionally, because of the limited number of people using them, liquidity has also been an issue. Traders using a DEX would not necessarily get their orders matched to make a trade. Not enough traders were using the system.
Two DEX trends emerging in 2020
1-Better UI. Here in 2020, we’re seeing many of these DEXes with upgraded user interfaces to make it easier for a wider audience to use. The more people using and trading on a DEX, the better the liquidity the exchange can offer. In turn, when an exchange has strong liquidity, it attracts more traders who are confident their orders will be filled.
2-New tokens have better changes on a DEX. Another trend that is important to note is that it’s been easier for token projects to get listed on a DEX as opposed to a centralized exchange that has stricter requirements and often much higher listing fees. This represents a double-edged sword. On one end, DEXes have provided a listing choice for up and coming projects that don’t have the resources or liquidity yet to list on a bigger exchange. On the other hand, it means that activity on a DEX may at times be involving low liquidity tokens.
The problems with DEXes
Over the past few years, many token projects have run into a Catch 22. They need liquidity for their token in order to be listed on a bigger exchange. But they can’t get the liquidity they need on the smaller exchanges and DEXes.
Additionally, when they don’t have liquidity, the token will most likely experience a higher level of volatility. This, in turn, may deter traders from trading that token. Lack of liquidity also makes certain cryptocurrencies easier to disrupt, as with setting up buy and sell walls. If there are only a few orders, a buy wall can have a much greater impact than with a highly liquid coin with many active orders.
As you can see, the liquidity issue can have many negative effects on both the trader’s experience as well as the success of the decentralized exchange.
This liquidity problem is exactly what DEX aggregators solve.
DEX aggregator definition
DEX aggregators enable traders to access the order books of many decentralized exchanges at once, instead of just one DEX at a time. Many of them also provide self custody, so the crypto of many users is not centrally stored.
So instead of aggregating news content or social media accounts as with other types of aggregators, a DEX aggregator combines cryptocurrency pricing information from the order books of multiple decentralized exchanges.
This creates an ecosystem experience. It also provides a higher level of liquidity and better chances that a trader’s order will be filled. Importantly, it gives traders an easy way to examine competitive prices. Since the aggregators combine the data from DEXes only, the traders can still enjoy the anonymity of DEX trading while experiencing enhanced liquidity for their favorite tokens.
Let’s see what a DEX aggregator looks like. We’ll use 1inchExchange as an example:
According to their homepage, you have twelve different DEXes that you can select when initiating a token swap. So in the top section, you select the tokens that you wish to swap. In this case, you see numerous trading pairs with the selection box defaulting to ETH and DAI. You can choose the trading pair, select the amount, and designate which DEXes you’d like the exchange to sweep for prices. You can pick one DEX, a few, or even all of them.
DEX aggregators for 2020 and beyond
In the past few years, we’ve seen many new DEXes begin operations in the crypto space. Now, we’re seeing multiple DEX aggregators popping up to make life easier for traders and improve decentralized liquidity. Some of the aggregators only perform token swaps, while others offer a range of exchange services. Let’s have a quick look at some of the more prominent DEX aggregators:
Stakenet’s interoperability platform features a network of masternodes that support and provide security for decentralized applications (DApps), which are built on top of its blockchain and fueled by their native XSN token. They have recently enabled easy liquidity with their “Lightning DEX”. By running the DEX on the Lightning Network, Stakenet is able to provide instant settlement and thus a higher level of liquidity.
Radar Relay enables mobile trading in ERC20 tokens right from any one of 21 different Ethereum wallets. By using their aggregator, you can save time, save on fees, and still have full custody of your crypto. The Radar Relay service is built on the Ox Protocol, and gathers data from across exchanges to present the best available price for each order.
Branded as an “automated liquidity pool”, Uniswap is an exchange protocol that pools liquidity reserves for Ethereum-based tokens, or “amulets” as they like to call them. They provide a simple smart contract interface for enabling Ethereum based token swaps.
Offering a super-easy way to exchange over 150 cryptocurrencies, Changelly strives to provide the best rates while also introducing a credit card option for buying cryptocurrency. With a UI designed for newcomers to crypto, Changelly can automatically check prices on decentralized exchanges like UniSwap and Bancor to get you the best price.
At DEXag, the most popular DEXes are aggregated so traders have access to competitive prices. They provide a near-instant DEX experience and low slippage fees, which occur when the price changes while a transaction is in process. DEXag provides many coin pairing options and two trading interfaces, one for ‘simple trading’ and the other for ‘pro trading’.
Ox is an exchange protocol that allows other teams to build token solutions upon it. Once developers integrate the Ox API, they are able to aggregate decentralized liquidity from a number of DEXes. Anyone globally can use 0x and their service is not limited to trading, but is also used by gaming platforms and financial instruments.
“Trading cryptocurrencies doesn’t have to mean losing custody.”Radar Relay
Pros and Cons of DEX Aggregators
- Liquidity – Due to the technical prowess required to use some of the early DEXes and the limited number of orders, liquidity has been an ongoing problem. Aggregators solve this by enabling traders to have improved services and access to many DEXes at once.
- Enhanced usability – When order books are aggregated, users have better chances of getting their order filled quickly. Additionally, more token projects (which often list first on a DEX) will have a quicker path to liquidity, which in turn helps them get additional listings and partnerships.
- No one takes custody – With DEX trading and DEX aggregators, your crypto always stays your crypto.
- Trustless transactions – Crypto traders and enthusiasts want more and more to have private transactions without giving away their identity. They can do so on a DEX.
- Improved user experience – This is a side effect of decentralized liquidity and usability. Overall, it’s a better experience when order books are pooled in this way. More tokens and more exchanges mean more choices and more financial freedom.
- Scam risks – Early token projects found it easy to get listed on a DEX, which led to some investor risks. DEX aggregators actually help mitigate this by moving DEXes toward higher liquidity and less volatility.
- Customer service may be lacking – This may be the case at some DEXes and certainly was an issue in the early days. But now decentralized exchanges such as WAVES are offering premium customer resources and support.
- Limited features – This “con” is also starting to give way in the face of innovation. Whereas at one time DEXes were very limited, they are now expanding their service offering at a rapid rate.
- It’s trickier to cash out from a DEX – Again, this was once a pressing issue. But now it’s waning in the face of innovative 3rd party brokers and p2p platforms like LocalEthereum and LocalBitcoins. Additionally, Changelly is offering a debit card that can be used for fiat transactions. The card lets you access your crypto while keeping ownership in your hands.
A final note on the last bullet point about cashing out. What aggregators are doing with DEXes is widely expanding their usability. This is happening after these decentralized exchanges have had several years of development to improve their platforms. Considering the constant stream of new entrants to crypto markets, improved DEXes could make cashing out less relevant. Meaning in the future, we may see crypto owners simply using their tokens as a means of money. We are moving away from cash as we speak and DEX aggregators are pushing us forward.
“DEXs are what the future of human commerce looks like…”– William M. Peaster
DEXes then and now…a personal note
What’s great about these DEX aggregators, and this is coming from someone who struggled to trade on an early DEX, is that these new entities are FAR easier to use and understand. When I first used the WAVES DEX Beta in early 2017, I had no real-life friends who could help me figure out how to swap out some tokens on a DEX. I had also never made a trade before in my life. If I’d asked anyone I knew for help, they’d have thought I was nuts. And it literally took me several days, a few hours each, to figure it out. When I did, it was practically by accident! Since then, WAVES’ UI has improved greatly. These new aggregators, however, have taken user experience to a new level. One of simplicity and ease of use, making the DEX the exchange of the future.