The Role of DEX Aggregators in DeFi

...
Alex Lielacher

DEX Aggregators are one of the latest innovations in the burgeoning DeFi market that allows traders to tap deep liquidity and receive better pricing.

While 2020 has been a crazy year for everyone, it has been an incredible year for the decentralized finance (DeFi) market. Not only have funds inflows into DeFi protocols ballooned, but innovations have also emerged to improve the crypto trading experience. One of these innovations is DEX aggregators.

In this article, you will learn about DEX aggregators and how crypto traders can use them to access liquidity.

What Are DEX Aggregators?

DEX is short for decentralized exchange, which is a crypto trading platform built on blockchain technology that allows users to retain control of their funds while converting one token for another.

Decentralized exchanges (DEXs) provide more security and privacy than their centralized counterparts, which is why they have seen a substantial increase in activity in recent years.

The most notable decentralized trading platform is Uniswap, which operates on the Ethereum network and allows crypto traders to convert ERC20 tokens via a user-friendly web-based interface directly via their Ethereum wallets.

On Binance Smart Chain (BSC), Binance Chain’s new smart contract-enabled parallel blockchain, PancakeSwap has emerged as the number one liquidity provider for BEP20 tokens. Despite having launched only four months ago, the dessert-themed automated market maker protocol boasts over $115 million in pooled liquidity for a range of cryptoassets.

The issue with decentralized exchanges, however, is that most of them do not provide enough liquidity — especially for smaller tokens — making it difficult to enter and exit larger positions without substantial slippage.

To address this issue, DEX aggregators were born.

DEX aggregators are financial protocols that enable crypto traders to access a wide range of trading pools via one single dashboard.

For example, if you want to buy ETH using BUSD on the Ethereum blockchain, you could use the Ethereum-based DEX aggregator, Matcha, to tap into liquidity on decentralized exchanges, such as 0x, Uniswap, and Kyber, to execute your trade.

On the trading application, you type in the crypto trading pair you want to convert. Then, the liquidity aggregator then finds the best possible price across all available platforms for you to execute your order.

While there are some differences among the currently existing DEX aggregators, they all have a user-friendly UI that only requires you to connect your wallet and make a single trade on a web-based application.

DEX aggregators are far removed from the early days of decentralized trading, which involved clunky UIs and complex smart contract execution. Now, traders can access one dashboard to trade across multiple trading pools to get the best price and the deepest liquidity — all while retaining complete control over their funds as well as a high level of privacy.

Why Traders Love DEX Aggregators

DEX aggregators, also known as liquidity aggregators, have several benefits that have made them very popular among active traders. In fact, DEX aggregators have become so in vogue that they made up around 20% of decentralized trading volumes in mid-2020.

So let’s look at the benefits of liquidity aggregators.

Firstly, DEX aggregators provide a deeper pool of liquidity for traders who want to trade large amounts of digital tokens.

If you are looking to convert a large position in a recently issued token into a stablecoin, for example, you may find it difficult to do that on just one decentralized exchange due to a lack of liquidity. However, if you use a liquidity aggregator, you are more likely to source the liquidity you need to exit your token position without creating too much slippage.

Secondly, you will typically receive a better execution price using a DEX aggregator that on a single DEX. Aggregators are built to enable traders to fill trades at the best possible level across a range of liquidity pools. So for price-sensitive traders and investors, it makes sense to use a liquidity aggregator instead of only a single decentralized trading platform.

Thirdly, in the same vein as “traditional” decentralized exchanges, DEX aggregators add a layer of privacy to crypto trading that you cannot find on centralized exchanges.

Unlike centralized exchanges that typically require users to fill out a KYC onboarding process, anyone with a crypto wallet and an internet connection can log onto a liquidity aggregator online and convert one digital asset for another. No ID verification is required and you will not be asked to fill out any paperwork.

Fourthly, DEX aggregators are typically non-custodial exchange platforms, which means that traders always retain control over their funds.

Whereas on centralized exchanges, you need to deposit coins and thus give up their private keys for the duration they are held on the platform, liquidity aggregators allow you to directly trade from and to your crypto wallet.

Finally, liquidity aggregators improve the decentralized trading experience as they provide user-friendly dashboards where a few clicks suffice to trade millions in digital tokens within seconds.

In light of the long list of benefits that DEX aggregators bring to the table, it should come as no surprise that several leading projects in this space have managed to secure millions in funding in recent months and that new market entrants are appearing on the scene.

ZeroSwap: A DEX Aggregator for Binance Smart Chain (BSC)

While there are already a handful of DEX aggregators operating on the Ethereum blockchain, Including 1inch, Matcha, and ParaSwap, the hottest contender for the first liquidity aggregator on Binance Smart Chain (BSC) is ZeroSwap.

The ZeroSwap team is building a decentralized, gas-less, multi-chain trading protocol that will aggregate liquidity to enable crypto traders to seamlessly trade tokens from multiple blockchains (including Binance Smart Chain) at zero fee.

On October 6, ZeroSwap announced that it has chosen to support Binance Smart Chain, in addition to Ethereum, because of its “compatibility with Ethereum, its in-production blockchain and [because it’s] the fast-growing ecosystem.”

As ZeroSwap points out, Binance Smart Chain is EMV-compatible, has only a five-second block time, has cross-chain conversion capabilities, and is integrated into existing Ethereum tools, such as MetaMask, which positions it as a promising new blockchain for the booming DeFi market.

On an AMA with Wolf Crypto, ZeroSwap CEO Chandrashekar Ramu elaborated on ZeroSwap’s plans to provide liquidity aggregation:

“DEX Aggregation is primarily used to solve the liquidity problem. We will aggregate the existing protocols and then provide trading in a gasless manner with zero charges on trade fees.”

On the topic of Binance Smart Chain support, he added:

“We have seen very good traction on the platform, and many interesting projects are building on Binance Smart Chain, therefore we chose them. Not to forget they are also EVM compatible!”

Trust Wallet: Your Homebase for Decentralized Trading

Trust Wallet provides a secure and user-friendly hub for all your decentralized trading needs from Ethereum to Binance Smart Chain.

Not only does Trust Wallet allow users to convert digital assets directly within the wallet’s in-app DEX, but it also allows you to connect to third-party decentralized trading platforms for a wide range of blockchains directly via Trust Wallet’s **DApp Browser **while holding custody of their funds.

Additionally, the non-custodial wallet enables investors to securely store over 160,000 digital assets in one place.

[Download Trust Wallet](https://trustwallet.com/) to enter the world of decentralized trading today.

Get the Trust Wallet app now!

The most trusted & secure crypto wallet