5 Biggest Challenges That DEX Users Face

The advent of DeFi has brought about substantial changes in the crypto industry, with Decentralized Exchanges (DEXs) truly putting people in control of their money.

DEXs stand for everything that cryptocurrencies promise - a truly transparent financial system where users are in complete control of their funds/assets. In an environment where CEXs continue to derive their principles from TradFi (traditional finance), the rise of DEXs promises democratized, decentralized, and transparent global finance.

However, CEXs continue to witness maximum user activity despite having a significant degree of centralization. While Uniswap, the largest DEX by trading volume, has just 30 million users, Binance, the world’s largest CEX, has over 170 million users.

So what’s preventing DEXs from attracting more users when they are far more decentralized in nature and promote self-custody? Well, five reasons are acting as roadblocks for the adoption of DEXs.

Complex Onboarding: Let’s face it, trading on DEXs (decentralized exchanges) is complex. Imagine a TradFi user having to transfer assets on-chain, do swaps, set slippage, bridge assets for cross-chain transactions, and much more. On top of it, DEX users have to safeguard their private key and recovery phase.

It all sounds like a nightmare for a TradFi user who has been using traditional trading applications for years. Centralized exchanges continue to witness increased adoption because they offer the same wine in a new bottle, i.e., access to cryptocurrency trading with a TradFi-like interface. On the other hand, poor user experience caused by complex onboarding continues to act as a roadblock. Poor roadblock prevents 88% of users from returning to a platform.

Poor Liquidity: It goes without saying that liquidity is the backbone of DeFi. How easily users can swap their crypto holdings for a different token directly impacts their trust in the platform. While sophisticated tech like AMM (automated market makers) has emerged, a significant chunk of DEXs still rely on order books.

Hence, it is a loop. DEXs need more users to improve liquidity, and liquidity can only be improved through an increased number of traders or partnering with multiple market makers. Unless liquidity in DeFi emulates liquidity in TradFi, mass adoption of DEXs is likely to remain a distant dream.

High gas fees: Transaction fees on a DEX is the sum of gas fees (network fees) and trading fees. Trading on DEXs is expensive, with several exchanges charging high fees like GMX, Gains Network, and more, making it difficult for retail investors to make on-chain transactions.

This has a direct impact on accessibility. According to Kaiko, trading on DEXs is dominated by large players, i.e., whales. The average trade size on DEXs ranges between $10,000 and $20,000, whereas the average trade size on CEXs ranges between just $2,000 and $4,000.

For traders with limited capital of $1,000 or less, trying out the world of decentralized exchanges (DEXs) is a very costly affair.

High Latency: Uniswap, the largest DEX by volume and the number of users, has latency as high as 12 seconds or more. Dydx, the currency market leader in the DeFi space, processes up to 500 trades per second.

If you compare this to any leading CEX, the latency is much lower. While Solana-based DEXs emerge as a scalable alternative, frequent network halts are a major roadblock to increased adoption. Low latency is the need of the hour to make DEXs more scalable and facilitate faster on-chain settlements.

Different Exchanges For Perps and Options: The crypto derivatives market unlocks golden opportunities for institutions to hedge their positions. However, the absence of multiple markets, i.e., perps and options, on a single DEX makes things difficult.

There is a dire need for DEXs that allow traders to hedge their by exposing their capital to multiple derivatives markets.

The Road Ahead

Where there’s a shortcoming, there’s an opportunity to make amends. Emerging DEXs tend to have taken lessons from the challenges faced by existing DEXs in onboarding users.

Upcoming DEXs continue to leverage advanced technologies and sophisticated concepts like Layer 3 scaling to bridge the gap between TradFi and DeFi.

For example, Syndr, an upcoming world-first layer 3 DEX powered by Arbitrum, is using orbit stack to boost scalability and provides a whole new DeFi (Decentralised Finance) trading experience. On top of that, it offers latency ranging from 1 to 30 milliseconds, comparable to that of centralized exchanges, thus facilitating faster on-chain settlements than ever before. Most importantly, it is one of the very few DEXs that offers access to both options and perps markets, facilitating seamless hedging.

Syndr invests substantial efforts in designing its UX like a TradFi platform, making onboarding simpler. Lastly, it is the only upcoming DEX that provides on-chain trading with zero gas fee, which means traders will be able to save a substantial amount on their on-chain trading.

Decentralization is the only way ahead, and DEXs are bound to have increased user activity over the years. However, low latency, scalability, reduced transaction fees, and increased liquidity are a few prerequisites for mainstream adoption of DEXs.

Thoughts?