Decentralized Exchanges, Off-Chain Atomic Swaps, And A Brief Look Into The Future

Alternative solutions to centralized exchanges are available and are called decentralized exchanges.

Liquidity The way decentralized exchanges work is that people individually set and take orders.

These orders exist on separate order books that are hosted independently of each other.

This creates an issue as users suffer from a lack of liquidity and may have to look at several different books to place their orders.

Front running Front running is the concept that people can outbid an order placed on a DEX. Many decentralized exchanges running on Ethereum rely on smart contracts.

Once a bad actor identifies that an order has been placed on a DEX, they can simply jump in front of them by placing the same order except with more gas.

Once the transaction is mined, a second transaction is sent with all the details - therefore executing the order on the DEX. Unfortunately, this method isn't perfect as it doesn't prevent accidental collisions, for example when two of the same orders placed at the same time.

Atomic Swaps describes the "All or nothing" exchange of one currency for another, for example, Bitcoin for Litecoin.

Just like how DEXs order books can share their information with one another, so too can transactions be routed and shared between nodes that have the funds and the channels to perform the swap.

Overall, the future of cryptocurrency exchanges seems to be bright as they are continually evolving.