Crypto trading will never be the same after decentralized exchanges entered the game. Here's how to compare the top DEXs.
Updated Nov 17, 2022
Many companies on MoneyMade advertise with us. Opinions are our own, but compensation and in-depth research determine where and how companies may appear.
DeFi
Crypto
Global Markets
These days, traders on decentralized exchanges have wall-to-wall options when it comes to where to swap their cryptos. The deal is even sweeter for liquidity providers because those same platforms can't operate without them, so they're fighting tooth and nail by offering the best rewards to those wanting to stake their cryptos. Ultimately, it all comes down to one question: Which DEX is the best?
While some DEXs are just rebranded clones of another platform deployed onto other blockchains, there are a few DEX platforms that stand out from the rest due to their innovative takes on the same tried-and-tested formula. The Uniswap AMM protocol is and always will be the OG, but could Curve Finance or Balancer blow it out of the water? Let's get into what makes these platforms special and how they're striving to differentiate themselves.
Decentralized exchanges (DEX) are DeFi platforms that enable the exchange of crypto assets using smart contracts. Unlike traditional crypto exchanges that use order books to match buyers with sellers, these smart contracts replace the need for a centralized party with a formula called an automated market maker (AMM). AMM formulas enable the creation of liquidity pools that are used by traders to freely swap cryptos.
| Uniswap | Curve | Balancer |
|---|---|---|---|
Purpose | DEX with a simple AMM formula | DEX for stablecoins | DEX for multi-asset pools |
Max asset per pool | 2 | 4 | 16 |
Fees | 0.01%, 0.05%, 0.30%, or 1%. | 0.04% to 0.4% | Static or Dynamic |
Ethereum | Yes | Yes | Yes |
Polygon | Yes | Yes | Yes |
Arbitrum | Yes | Yes | Yes |
Avalanche | No | Yes | No |
Optimism | Yes | Yes | No |
Uniswap was the first DEX to popularize the AMM formula where liquidity providers deposit an equal dollar amount of two cryptos into a pool and receive liquidity pool tokens (LP) in exchange. Traders can utilize that liquidity for a fee and this fee goes back into the liquidity pool to be split proportionally among all liquidity providers. Liquidity providers can withdraw their liquidity from the pool plus the fees they earned from traders at any time by depositing their LP token.
While this general model for structuring a DEX became popular and was replicated by other platforms, the constant product AMM formula used by Uniswap wasn't exactly perfect. This relatively simple AMM formula was effective for trading most crypto assets, but slippage and divergent loss posed an issue for traders and liquidity providers in some pools. While anyone could create liquidity pools on Uniswap, the AMM formula limited the number of assets in the pool as well as the proportion of those assets.
One major problem with DEXs that use Uniswap's AMM formula is that fees and slippage generated by swapping cryptos aren't ideal for trading between stablecoins and assets pegged to the same value, like liquid staking solutions. That's where the Curve Finance DEX comes in. Curve altered the AMM formula to make it better for creating stablecoin pools that could be used to trade with low fees and low slippage.
Curve's reiterated AMM formula enabled new types of liquidity pools that made the DEX less rigid than its competitors. For instance, rather than limiting the number of assets in a liquidity pool to only two cryptos, Curve introduced tripools which allowed the creation of liquidity pools containing an equal dollar amount of three crypto assets. On top of that, the platform also introduced metapools, which enabled the trading of a fourth asset with the three assets in an underlying tripool.
Curve's lower trading fees and new liquidity pool types made it one of the top destinations for trading stablecoins and synthetic assets on Ethereum and compatible layer-2 networks. This is because liquidity providers could deposit their cryptos without taking on as much risk and traders could save money on swapping fees while experiencing significantly less slippage. This brought the golden age of decentralized stablecoin trading, but more importantly, opened the door for DEXs to develop even more flexible AMM formulas.
Balancer took the AMM formula to the next level by making them even more customizable. First, we had Uniswap pools composed of equal parts of just two cryptos. Then, Curve one-upped Uniswap by enabling the creation of tripools while lowering the costs associated with fees and slippage. Finally, Balancer weighted pools did away with these restrictions by enabling the creation of liquidity pools with up to eight cryptos as well as the ability to customize the proportion of crypto assets in a pool.
This means that instead of having liquidity pools either be split 50:50 of two cryptos, like on Uniswap, or be composed of equal parts of just three cryptos, like on Curve, weighted pools on balancer could be made up of any proportion of as many as eight cryptos. Hence, liquidity pools on Balancer are no longer limited to just three crypto assets nor are they bound by the constant product formula forcing pools to maintain an equal percentage of each crypto.
Balancer weighted pools also illustrated how liquidity pools to be used beyond just facilitating crypto trades. While, in general, weighted pools function similarly to liquidity pools on other DEX platforms, Balancer believes their multi-asset liquidity pools bear a closer resemblance to crypto index funds where liquidity providers are the investors who gain exposure to many assets, and traders replace managers by rebalancing the pool through their token swaps.
If you evaluate them as crypto index funds, multi-asset pools are actually a much better deal for crypto investors than a traditional index fund because rather than paying fees to a fund manager, investors earn additional revenue from the swapping fees paid by traders who utilize the liquidity pool. Balancer takes the crypto index fund concept even further with managed pools, which enable the deployment of actively managed liquidity pools composed of up to 50 cryptos.
While choosing which DEX to use for yield farming or for trading is a subjective financial choice, the decision of which platform to use can be broken down based on one's goals as a crypto investor or trader. Uniswap is great for beginners to deploy simple liquidity pools and trade popular assets, but if the two assets you want to trade aren't in a pool, then the trade has to be routed—meaning your liquidity will have to move through a few different pools in order to facilitate a trade for the specific token you want. While DEX aggregators like 1inch and ParaSwap can help traders save money on token swaps by utilizing the best liquidity pools across all platforms, routing trades through several DEXs is still inefficient and more costly.
Traders looking to swap between stablecoins will probably prefer a DEX that specializes in stablecoins, like Curve. Curve's AMM formula is specifically designed for trading assets that are pegged to the same value, which means it's the most efficient and cost-effective place to trade stablecoins like USDT and USDC as well as cryptos pegged to the same value, like ETH and wETH, for instance. Curve Finance is also one of the best yield farming platforms for liquidity providers.
If you're looking to use a DEX on a network other than Ethereum, then these platforms are probably not for you. The Balancer, Curve, and Uniswap platforms are only deployed on Ethereum and EVM-compatible networks like Polygon and Arbitrum. This means that the DEXs discussed in this article are only compatible with ETH and other ERC-20 tokens. So, if you want to trade a crypto like ATOM, for instance, you'll have to do that on a Cosmos-based blockchain like Osmosis.