What is a DEX Aggregator?
Cryptocurrency exchanges are classified into two main types — centralized and decentralized. DEX aggregators serve as a unified explorer for prices and liquidity offered by decentralized exchanges (DEXs). With the rise in popularity of cryptocurrencies and the growing utilization of decentralized exchanges, DEX aggregators have become a sought-after service.
Decentralized exchanges offer varying pricing, and it is not always easy to find the best deal for the trading pair you are looking into. Not only that, crypto investors are starting to turn more and more to DEXs, as they offer increased security and a better fit with the innate characteristics of a cryptocurrency. However, with the rising interest in crypto, more and more DEXs flood the market, and investors often struggle to find the best possible liquidity and pricing. This is where DEX aggregators come into play. While investors can try and sift through different exchanges with limited success, DEX aggregators rely on complicated algorithms to take into account numerous factors in selecting the best possible provider for a given token swap.
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, sushi, balancer, and Curve ... which operates on the Ethereum network or another network and allows crypto traders to convert ERC20 tokens or Bep20 tokens via a user-friendly web-based interface directly via their wallets.
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.
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.
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.
How Do DEX Aggregators Work? DEX aggregators source liquidity from different DEXs and thus offer users better token swap rates than they could get on any single DEX. DEX aggregators have the ability to optimize slippage, swap fees and token prices which, when done right, offer a better rate for users. For instance, a swap deal split between several DEXs can get a user an overall better price than a swap on any single exchange. A DEX aggregator’s main task is to offer a user better swap rates than any specific DEX can offer and to do that in the shortest possible time. Other major tasks are protecting users from price impact and reducing the probability of failed transactions. DEXs are generally interested in DEX aggregator integrations, as they can attract more users and volume. Recent data shows that high notional traders are increasingly using DEX aggregators, while retail users still choose to access DEXs directly. DEX Aggregators and the DeFi Boom DEX aggregators are a somewhat newer concept that arose from the rise in DEXs. They have become more important to users in the recent DeFi boom as more and more users prioritize better prices on their trades.
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 15-20% of decentralized trading volumes in mid-2020 - mid-2021. So let’s look at the benefits of liquidity aggregators.
DEX aggregators provide a deeper pool of liquidity for traders who want to trade large amounts of digital tokens.
Trader will typically receive a better execution price using a DEX aggregator than 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.
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.
DEX aggregators are typically non-custodial exchange platforms, which means that traders always retain control over their funds.
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.