P2P DEX
P2P DEX, or peer-to-peer decentralized exchange, is a blockchain-based application that supports P2P trading.
What Is a P2P DEX?
P2P DEX is short for
peer-to-peer decentralized exchange. It is a blockchain-based application that supports
peer-to-peer trading, which is any trade that occurs directly between two crypto traders without third-party involvement.
P2P DEXs propel the autonomous and free mindset in crypto, moving away from financial institutions and traditional finance.
Unlike
automated market maker (AMM) DEXs (e.g. PancakeSwap or Uniswap) where users can trade with each other indirectly via
liquidity pools, users of P2P DEXs (e.g. Liquality or AtomicDEX) transact directly with each other in a trustless environment.
There are several benefits to using a P2P DEX over AMM DEXs and centralized crypto exchanges.
P2P DEXs have a clear security advantage because they allow users to trade funds from their own
non-custodial wallets. AMM DEXs require market makers to lock funds into smart contracts. They are more vulnerable to hacks because large sums of funds are often pooled into a single crypto address. As seen with incidents like the
$650 million Ronin bridge hack, AMM DEXs often have a small group of validators who are responsible for keeping liquidity provider funds secure.
Essentially, P2P DEXs provide a more trustless, decentralized and secure solution for liquidity providers because funds aren’t pooled together. While P2P DEXs sometimes lack liquidity, the main benefit is that users, especially
liquidity providers, don’t need to worry about issues like
impermanent loss or smart contract exploits.
Secondly, many of them use trading tools, like
atomic swaps, which makes these platforms
cross-chain and cross-protocol compatible. For example, two users can trade Bitcoin (BTC) with Ethereum (ETH) or
Shiba Inu (SHIB) with Dogecoin (DOGE), across their respective blockchains without needing a trusted third party.
Additionally, P2P DEXs also provide a greater degree of anonymity compared to centralized exchanges since platforms don’t require users to complete a formal registration process or submit personal information.
To get the benefits of both AMM and order books, some DEXs, such as IDEX, have implemented a hybrid model that combines both architectures.
Some examples of peer-to-peer DEXs can be found on protocols such as Liquality, Polkadex, ShibaDEX, and AtomicDEX.
Author: Kadan Stadelmann, CTO of
Komodo, a leader in blockchain interoperability and atomic swap technology.
Kadan Stadelmann is a blockchain developer, operations security expert, and Chief Technology Officer of Komodo, an open-source technology provider that offers all-in-one blockchain solutions for developers and businesses. Komodo works closely with organizations that want to launch their own custom decentralized exchanges, DeFi platforms, and independent blockchains. Its flagship technology and end-user application is
AtomicDEX - a mobile and web-compatible non-custodial multi-coin
wallet and
atomic swap-powered DEX rolled into one dApp. Kadan strongly identifies with Komodo’s open-source vision and ideology. His dedication to the Komodo project is founded on an unwavering desire to make the world a better place. In addition to cryptography, blockchain technology, and development, Kadan is interested in literature, mathematics, astrophysics, and traveling.