What is a DEX Aggregator?

DEX Aggregators have continued to gain rapid recognition among crypto investors and traders searching for financial benefits and other profitable opportunities in the decentralized finance (DeFi) industry. Currently, retail and whale token traders have begun to migrate their assets from centralized exchanges (CEXs) and decentralized exchanges (DEXs) to DEX aggregators because of the huge liquidity, easy user experience, good pricing, security, and privacy.

Launched in 2019 following a Hackathon competition, DEX aggregators have greatly influenced crypto trading, recording up to 50% of decentralized exchange trading volume by the end of 2021 and emerging as one of the most amazing pieces of infrastructure built using blockchain technology.

Furthermore, DEX aggregators otherwise known as liquidity aggregators are on the increase and the benefits are invaluable, with a continuous inflow of funds (liquidity) into DeFi protocols.

What is a DEX Aggregator?

A DEX aggregator is a blockchain-based service that permits traders and investors to trade their crypto using a single platform. DEX aggregators serve as a unified explorer for liquidity and prices in the DeFi world that allow investors/traders to determine their trades and coin-swapping process.

By employing the use of a single interface and combining data from multiple decentralized exchanges, DEX aggregators allow crypto traders to obtain good returns from various financial pools.

What is the difference between a DEX and a DEX Aggregator?

It is important to understand the basic difference between DEX and DEX aggregators as we delve deeper into this article.

Decentralized exchanges, also known as DEX, arepeer-to-peerr crypto trading platforms that leverage the functionality of smart contracts, mostly built on the Ethereum network. Also, they are decentralized trading platforms that do not require know-your-customer (KYC) anti-money laundering (AML) verifications. This is because DEXs have no counterparty risks and occur between the traders and the liquidity pool.

Further, they are non-custodial, meaning that users have full control of their crypto assets, private keys,s and security of their funds. With the implosions of leading centralized exchanges (CEX), crypto traders are increasingly seeking custody of their funds and opting for DEX to carry out crypto transactions. Uniswap, to date, remains the most popular and used DEX In decentralized finance (DeFi), and some DEXs — Sushiwap, PancakeSwap, etc. — were created using Uniswap’s open-source code.

In contrast, DEX aggregators are quite different from DEX. Basically, they are trackers that find the best liquidity pools to enable transactions and also stop “slippage.” Also, they connect hundreds of DEX liquidity pools and eliminate the incessant problem of limited liquidity which mostly results in slippage.

Further, there’s no downside to using a DEX aggregator, rather it helps traders and investors to locate DEX with high liquidity that offers users better token rates.

Ultimately, the problem with DEX is liquidity, and DEX aggregators were created to squarely address this problem. A good example of a DEX aggregator is the 1Inch network.

Types of DEX Aggregators

DEX Aggregators can be grouped into two major categories:

• Trading Aggregation: Unlike centralized exchanges that are based on order books, DEX Aggregator’s main function is to aggregate trades by quoting a price based on an algorithm specified in a smart contract. These provide traders with numerous options to choose from the best channel to execute the most profitable trade.

• Information Aggregation: To improve users’ trading experience, DEX Aggregators provide traders with real-time information so that they can have a good track record and adopt the most profitable decisions. Information Aggregators are important because they provide well-balanced data for traders to keep track of market trends.

  Also, liquidity aggregators provide verifiable information on the best prices across all exchange networks.

How does a DEX aggregator work?

DEX aggregators are built on the existing DEXs, that’s, they provide a single point of access to several DEXs. On the liquidity aggregator, traders are provided a single point of entry to inspect available markets, trade pairs, order books, and prices across different blockchains.

It has the ability and capacity to enable users to access a wide range of trading pools via one single dashboard because it is built on a strong algorithm that provides better execution prices, swap fees, token prices, and user benefits.

A good example is how Ali Express gives a compiled list of products with similar features for you to select and purchase the best out of them, rather than searching for each product on the internet and researching it; saving users the loss of time doing tiring manual research across individual DEXs.

In addition, the DEX aggregator assists traders to make informed decisions on their trades and swaps in the most effective way. Moreover, on the DEX aggregator, transaction failure is prevented and users’ price impact is protected, through liquidation.

Who is Building DEX Aggregators?

A DEX Aggregator or liquidity aggregator was first created in 2019 following a Hackathon competition organized to resolve the challenges facing DEXs in the crypto space. Sergej Kunz and Anton Bukov emerged as winners by building the first DEX Aggregator within 18 hours. Though the first version built was not functional, it opened a new door for the era of DEX Aggregators. Today, the DEX aggregator built by the duo is the famous 1inch DEX aggregator.

Furthermore, being an important blockchain-based service, DEX aggregators have continued to be popular because of their uniqueness and dynamism in liquidity generation and trade and have without a doubt attracted millions of users and investors to access several opportunities in DeFi.

Prior to the launch of DEX aggregators, decentralized exchanges have gained prominence in the crypto space but were faced with the challenges of lack of liquidity, poor pricing, and loss of time and energy researching different DEXs. In the next section, we will be looking at how DEX aggregators solve these problems.

What problems does a DEX Aggregator solve?

Every invention is predicated on the premise to solve a particular challenge. Thus, DEX Aggregators was created to provide solutions to several challenges faced by traders in the DeFi space. Here are some of the interventions of the innovation:

• It provides one-way access for crypto traders to view all available markets and prices across other blockchains.
• It also provides room for the best value possible swap fees, order book, and token prices to the advantage of the investors.
• Built on a high algorithm, DEX Aggregators has helped to improve traders’ decentralized trading experience.
• It mitigates transaction failures and protects traders from price impact.
• Also, it has helped to solve the monopoly tendency in the crypto space.

Importance of DEX Aggregators

The innovation of DEXs has greatly impaired monopoly in the crypto space, however, user experience and the supply of liquidity remain a major problem. Until the advent of DEX Aggregators, users risk high price impact and liquidity problems thereby making it difficult to access DEXs.

The adoption of DEX Aggregators is on a steady increase and recorded a 20% increase in trading volume in the crypto industry. The importance of using DEX Aggregators includes:

• Improved Decentralized Trading Experience: DEX Aggregators improve the decentralized trading experience of traders as they provide a user-friendly environment where millions of tokens can be easily traded within seconds.

  In making trading so easy and simple, traders will be provided with the best exchange platforms where trading and transactions can be easily executed. On DEX aggregators, trades are split across multiple exchanges as well as market depth within the same exchange to reduce the transaction cost.

• Provision of deep liquidity pool: One of the main tasks of DEX Aggregators is to provide a liquidity pool for traders who want to engage in large amounts of token transactions.

  Until the advent of DEX Aggregators, converting bulk tokens to stablecoins when initiating large trades used to be difficult on decentralized exchanges. To avoid difficulty while sourcing for liquidity and trading on high slippage, DEX aggregators help provide a huge liquidity pool for easy transactions.

• Non-custodial and Anonymity: Unlike centralized exchanges where users have to fill out KYC before initiating trade on the system, DEX Aggregators is a non-custodial and anonymity exchange that allows traders with crypto wallets and good servers to swap digital tokens without paperwork or KYC.

  In addition, all DEX Aggregators permit traders to have control of their assets, leveraging the features of blockchain technology, that’s security, decentralization, and privacy. DEX Aggregators don’t request any private keys from traders before they are allowed to trade from one crypto wallet to another.

Leading DEX Aggregators

Currently, there are different DEX aggregators in the industry serving similar purposes. These DEX Aggregators are built by different developers to resolve the liquidity and price impact crisis facing DEXs.

Under this section, we will be exploring some notable DEX aggregators in the crypto space such as 1inch DEX built by 1inch Network, Swapzone, Atlas Dex, Paraswap, Orion Protocol, and Zeroswap, among others with high trading volume.

• 1inch DEX: Founded by Sergej Kunz and Anton Bukov in 2019, 1inch is a non-custodial decentralized exchange and DEX Aggregator that connects multiple DEXs into a single unified platform.

  On the 1inch aggregator, traders are allowed to swap or optimize their decentralized digital tokens without bothering to check rates across every DEXs. Renowned for rummaging best liquidity sources among various DEXs platforms; for example, 1inch incorporates over 30 liquidity sources on Binance, 30+ liquidity sources on a polygon, and 60+ liquidity sources on Ethereum and other mainstream DEXs to ensure traders get better deals while trading directly on any of this protocols. Recently, 1inch released version 2 of its protocol which is embedded with a routing algorithm also known as a pathfinder.

• KyberSwap: It is recognized as one of the best DEX aggregators that give traders better rates enhancing liquidity with low fees in the crypto space. Also, it is a blockchain-based liquidity service provider that connects crypto liquidity to enable users to trade at the best rates. Founded in 2017 by Loi Luu and Victor, Kyberswap aims to strengthen collaboration with various networks and provide a well-developed ecosystem for traders. DApps and liquidity providers can trade and earn from different digital tokens. Through KyberDAO. Kyberswap is controlled by KNC holders and it supports over 10 networks.

• Zeroswap: Zeroswap is one of the first DEX Aggregators to be built on the Binance Smart Chain. Launched on BSC in 2020, Zeroswap is an EVM-compatible liquidity aggregator that boasts of high decentralization, charges low gas fees, and has a Cross-Chain conversion mechanism. Because of its EVM compatibility, it supports Binance and Ethereum. It possesses a multi-chain trading protocol that assists traders to perform seamless trade of tokens from multiple Blockchains at low charges.
• 1Sol Protocol: This is the first cross-chain DEX aggregator to be built on Solana. It is a protocol that is well-protected, seamless, secure, and highly decentralized. 1Sol taps liquidity from both DeFi and CeFi to enable easy swapping and trading at low fees.
• Matcha: Powered by Ox Labs, matcha is a trading platform that allows users to swap their tokens p2p through Ethereum smart contract. While protecting users’ assets from market volatility, it aggregates the most affordable prices across multiple liquidity sources to maximize the profits users get from each trading.

Recent Developments about DEX Aggregators

Recently, project developers have recorded high success with DEX aggregators as it has continued to witness high patronage in the DeFi market.

Currently, efforts are ongoing to add more features to DEX aggregators. For example, K.X Finance recently announced the launching of the Aptos DEX tool where users can enjoy crypto earning in several ways, get more capital usage efficiency and lower cost in a V2 way and rebalance the liquidity redistribution algorithm.

Also, some DEX aggregators like 1inch now offer mobile apps that help traders swap tokens using their smartphones. It also allows users to perform “Yield Farming” by providing liquidity to the liquidity pools.

More efforts are still underway to improve the development of DEX aggregators to facilitate more DeFi booms in the crypto market.

Conclusion

The advent of DEX aggregators in the crypto space has without doubt helped to improve the efficiency, scalability, high performance, and transparency of the DeFi and DEXs.

The innovation has greatly continued to save traders from market volatility as it provides deep liquidity pools for them to execute trades across blockchains.

Apart from the fact that they have successfully expanded the use of cryptocurrency exchanges across wallets, liquidity aggregators have also assisted DEXs to make lots of profits because it connects them to millions of users. However, users/traders should seek professional advice and do your own research (DYOR) before investing in or using a DEX Aggregator to avoid unbearable risks.