What are DEXs and Why Do DAOs Need Them

What are DEXs?

As consumers, we love to purchase stuff. This trend has given rise to the ownership economy. Creators, on the other hand, are playing a different game. Artists, musicians, writers, or other creators are investing in their creative process. Creators are operating in the creator economy. As technology evolves and creates more opportunities for wealth creation, these economies are rapidly growing. Thanks to blockchain and peer-to-peer technologies, the ownership economy is catalyzed by the creator economy and vice versa.

Society is starting to value digital assets—stuff that can be deployed and accessed by anyone online. While traditional digital assets are easily copied and replicated online, they are not exchanged or traded since they often lack digital licenses of scarcity. Buyers of conventional digital assets often go to marketplaces and are not allowed to resell their purchases. Modern digital assets, powered by blockchain and peer-to-peer technologies, empower buyers with modern tools. In the new ownership/creator economy, buyers and sellers of digital assets give rise to exchanges and auction houses.

Decentralized exchanges (DEXs), decentralized auction houses (DAHs), or decentralized marketplaces (DEMs) refer to the same thing. These decentralized platforms allow anyone to exchange digital assets with another without third parties.

DEXs create a bridge between buyers and sellers. These decentralized exchanges enable peer-to-peer transactions without the need for trust, infrastructure, or highly specialized knowledge. They effectively create new markets where there were previously none.

DEXs are online marketplaces where you can buy and sell digital assets using blockchain and peer-to-peer technologies instead of centralized platforms. DEXs operate with no trusted third party and function similarly to marketplaces, only instead of buying and selling physical products, users can buy and sell crypto coins and crypto tokens.

Decentralized exchanges enable the buying and selling of cryptocurrencies without relying on centralized infrastructure and intermediaries. Buyers and sellers do not need to be registered, licensed, verified, or accredited with a DEX. They do not need to maintain any relationship with each other. The only reason for using a centralized exchange is buying or selling something crypto to fiat or vice versa.

Crypto DEXs provide a convenient way to trade crypto assets (crypto coins or crypto tokens). On Aug 7, 2020, the daily crypto DEX trading volume was 258M $USD. On Aug 13, 2021, the daily crypto DEX trading volume was 5.2B $USD, which represents a 19X increase in one year.

In 2017 and 2018, centralized exchanges (CEXs) were the most used platforms to buy and sell cryptocurrency. Today, decentralized exchanges (DEXs) are the best way to swap one cryptocurrency for another. DEXs are also more secure than CEXs and have fewer trading limitations. CEXs deal with fiat-to-crypto on-ramps and crypto-to-fiat off-ramps. As a result, CEXs have more compliance requirements, often requiring account holders to send them a photo ID of their driver's license to exchange one crypto asset for another. DEXs allow you to buy Bitcoin ($BTC), Ethereum ($ETH), Bitcoin Cash ($BCH), or any other cryptocurrency directly from others without needing an intermediary or paying marketplace fees. With DEXs and decentralized wallets (aka non-custodial crypto wallets), you hold your private keys. You're directly sending data around the internet without having anyone involved with the transaction know anything about it. CEXs, on the other hand, often act as custodians of your funds. They generate new addresses on your behalf and hold your private keys.

What are DAOs?

Decentralized autonomous organizations (DAOs) are teams that operate without central management or top-down organizational structure. Unlike traditional companies, DAOs do not issue payroll or issue equity for long-term compensation. Instead, DAOs issue grants or distribute tokens to their members for their contributions.

DAOs are groups of individuals who collaborate in a decentralized matter through votes. Blockchain technologies enable modern teams to cooperate in a decentralized way. Blockchain technologies allow voting-based decision-making and governance to determine the direction of the organization.

DAOs aim to automate certain aspects of running a business while leaving certain decision-making powers in the hands of active members. DAOs create and manage crypto tokens. These tokens provide a means of exchange for goods and services and are transferable between individuals or DAOs. The creation of crypto tokens, also known as fungible tokens, is a prerequisite to creating DAOs.

DAOs are challenging organizational compensations. For example, one of the primary concerns of many organizations is the high cost of employee or contractor compensation. Crypto tokens provide alternative ways to compensate for team member's contributions.

Historically, the most expensive part of any organization has been human labor. While freelance marketplaces like Fiverr, Upwork, and Freelancer have made it possible to hire cheap labor from all over the world, modern organizations no longer need to rely on fiat-based compensation. Thanks to blockchain technologies, modern organizations can rely on code (aka smart contracts) to coordinate agents (employees or contractors) based on crypto tokens thanks to blockchain technologies.

Why do DAOs need DEXs?

Before we touch on the significance of DEXs and their application at DAOs, we need to understand the decentralized economy better. How do you build a decentralized economy when no central authority issues crypto coins or tokens? The existence of these decentralized exchanges allows people and projects to transact without relying on payment providers. Developers also use these decentralized exchanges to build decentralized apps efficiently.

DEXs are a revolutionary approach to funding groups or organizations. Unlike traditional venture capital or early-stage funding, DEXs provide powerful yet flexible tools for any team or organization to bootstrap project liquidity or generate project capital.

DEXs solve decentralized finance (DeFi) problems. These decentralized platforms allow users to buy and sell cryptocurrencies without needing an actual financial institution. In addition to becoming a popular tool for buying and selling crypto, DEXs are the perfect mechanisms for crypto experiments. DEXs allow DeFi communities to experiment at the speed of the internet with collaborations, royalties, incentive structures, and value propositions.

Since DEXs allow users to buy and sell crypto assets without needing an exchange based in a country, they are popular with individuals or organizations that prefer to purchase or sell their non-fungible tokens (NFTs) or fungible tokens (FTs) without relying on a centralized platform. In essence, DAOs can use DEXs to enable their team, investors, and community to exchange NFTs or FTs.

DAOs can use existing DEXs, or even launch their own, to empower their communities to buy, sell, or exchange digital assets. DAO-managed DEXs fulfill the needs of token holders and community members. Although DEX platforms are still in the early stages, their superiority over CEXs is undeniable.

DEXs will revolutionize the way users access and manage DAO's financial (aka FTs) and non-financial assets (aka NFTs) by offering a frictionless user experience across all digital asset exchanges. DEXs will enable users to buy, sell, store and trade digital assets, thereby making it easy for everyone to invest in token-driven projects.

DEXs are relevant because they cut out the middlemen and provide a secure, fully transparent way for buyers and sellers to communicate with each other efficiently without needing a trusted third party mediating the process. DAOs can use DEXs to allow their community members to swap one token for another quickly. By removing intermediaries involved in the buying and selling process, users get more for their money while enjoying a more convenient and DAO-brandable experience.