Introduction to Decentralized Exchanges on Metis: A Beginner’s Guide

Cryptocurrencies are rapidly gaining mainstream attraction, with decentralized finance (DeFi) playing a significant role in this transformation. DeFi's total value locked (TVL) has increased by 45%, reaching $159 billion, the highest since May 2022, according to DappRadar's report for February 2024. 

A key component of DeFi’s rising popularity are decentralized exchanges (DEX). Understanding what’s behind a DEX and how to use one is crucial for navigating DeFi effectively. 

In this blog we will briefly walk you through what a DEX is and highlight key DEXs you can use to experience DeFi on Metis.

What is a DEX?

A DEX is a peer-to-peer marketplace where users can trade cryptocurrencies directly without intermediaries. Instead of using banks or brokers, DEXs use blockchain-based smart contracts to facilitate trades. This approach offers transparency, reduces counterparty risk, and lowers systemic centralization pitfalls in the cryptocurrency ecosystem.

DEXs are essential to decentralized finance (DeFi), acting as building blocks for more sophisticated financial products. They offer complete transparency into the movement of funds and the mechanisms facilitating exchanges. Additionally, because user funds don’t pass through a third party’s wallet during trading, DEXs significantly reduce counterparty risks and enhance security.

How Does a DEX Work?

DEXs use smart contracts to automate the trading process. When you want to trade one cryptocurrency for another, you send your assets to a smart contract, which matches buy and sell orders and executes the trade automatically. Your assets remain in your wallet throughout the process, ensuring you retain control.

There are several DEX designs, each with unique features:

- Order Book DEXs: Similar to traditional exchanges, they use order books to match buy and sell orders.

- Automated Market Makers (AMMs): Use liquidity pools and algorithms to set prices, providing instant liquidity.

- DEX Aggregators: Search multiple DEXs to find the best price or lowest transaction fee. (Aggregators will have their own article)

Advantages of DEXs

DEXs offer several advantages over centralized exchanges:

• Control Over Funds: Users keep their private keys, ensuring control over their assets.
• Access to New Tokens: DEXs often list new and diverse tokens not available on centralized exchanges.
• Global Accessibility: No geographical restrictions.
• Lower Fees: DEXs typically charge lower fees than centralized exchanges.
• Privacy: DEXs generally do not require extensive personal information or KYC/AML processes.

Challenges of DEXs

While DEXs have many advantages, they also come with certain challenges:

• User Experience: The learning curve can be steep for beginners. Understanding how to use wallets, connect to DEXs, provide liquidity, and manage transactions can be daunting.
• Liquidity Issues: Some DEXs may have lower liquidity compared to centralized exchanges. This can lead to higher slippage and difficulties in executing large trades.
• Regulatory Uncertainty: The legal status of DEXs varies across different jurisdictions. This can create uncertainty for users and developers regarding compliance and legal risks.

Get Started with DEXs on Metis

Metis is a promising platform in the DeFi space, and several DEXs operate on the Metis network. These DEXs leverage Metis’ scalable and secure infrastructure to offer efficient and cost-effective trading experiences. Some notable DEXs on Metis include:

1. Hercules 

Hercules is a community-first, capital-efficient, and flexible DEX designed to support the next generation of builders on the Metis network. It offers tools for sustainable liquidity, enabling builders to create customized incentive structures. Users can earn real yields on their assets, contributing to deep on-chain liquidity for Metis.

Main features:

- Automated Market Makers  

- Staked Positions (spNFT)

- Nitro Pools

- Yield booster plugin

- Dividends plugin

- Launchpad plugin

- Swaps

Explore Hercules 

2.WAGMI

A decentralized exchange with advanced liquidity provision strategies, GMI mechanics, and leverage.

Main features:

- V3 liquidity pools (allows for up to 4000x more capital efficiency compared to Version 2)

- GMI (A pool that contains multiple "multi-pools." Each multi-pool is made up of three V3 pools)

- Swaps

Explore WAGMI

3.Netswap

Netswap builds on the frontier of DeFi, providing users with an innovative and unique trading experience that is seamless, accessible and empowering.

Main features:

- Farm 

- Pool (Providing liquidity and earn 0.25% swap fee)

- Launchpad 

- Staking 

- Swaps

Explore Netswap

4. Hummus

The protocol is implemented as a set of smart contracts prioritizing censorship resistance, security, self-custody, and capital efficiency.

Main features:

• Liquidity pools (enabling single-token provision, eliminating impermanent loss risk for liquidity providers)
• Swaps

Explore Hummus

5. Hermes

A decentralized protocol facilitates low-fee and low-slippage exchanges of volatile assets (e.g. DAI to WETH) and stablecoins (e.g. DAI to USDC).

Main features:

• Liquidity pools 
• Staking
• Swaps

Explore Hermes

6.Algebra

Algebra is a next-generation Automated Market Maker (AMM) and concentrated liquidity protocol for decentralized exchanges. It is based on adaptive fees technology, making it a revolutionary solution in the DeFi field.

Main features:

• Liquidity pools 
• Staking
• Yield farming
• Swaps

Explore Algebra

If you're new to Web3, starting with a DEX on Metis is an excellent way to delve into this innovative technology and financial system. It offers new economic opportunities for its users. Ready to dive into the world of decentralized trading? Set up your wallet, connect to a DEX on Metis, and make your first trade today. For more detailed guides and tutorials, visit our YouTube channel  here 

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