Decentralized exchanges look like a staple for cryptocurrency traders. Market operators like Uniswap, Pancake Swap, SushiSwap and many others are drawing in increasing trading volumes.
Those exchanges are not only key to trading. The markets also give liquidity to the newest play to earn projects, extending the value opportunity for reward tokens and other native assets.
How Decentralized Price Action Works
A centralized cryptocurrency exchange will keep order books and match orders through centralized settlement. Traders deposit funds into the exchange’s wallets, and in exchange they are credited with a certain amount of tradable assets. The underlying assets, however, are not immediately available for the user, and there is a risk of loss, exchange attacks or defaults.
A decentralized exchange, on the other hand, will never take custody of assets. Instead, the tokens or coins will be held in a smart contract and can always be released under certain conditions.
A decentralized exchange uses a simple formula to establish a price correlation between two assets. The formula is X*Y = K, where K is constant. This means that two assets, for instance AXS and ETH, will have multiple possible prices, depending on how much of each asset has been deposited within the trading pair.
The biggest advantage of decentralized exchanges is that it is possible to list a token immediately and encourage price discovery and liquidity. Without this tool, new play to earn games will have a much more difficult time while waiting to be listed on centralized exchanges.
Are Decentralized Exchanges Risky?
Decentralized trading pairs are often very volatile. With play to earn, however, it is possible that the price action may be more predictable. Game users have an incentive to leave their tokens for a longer period and wait until they see price appreciation.
Additionally, play to earn tokens are at less risk when tied to growing game metaverses with multiple users where the reward token or native asset will have other important use cases.
Technical mistakes may lead to the loss of funds. One technical mistake may be to send tokens to a smart contract address, thus locking them in forever. Always make sure to send tokens to the correct staking address for passive income.
What are the Best Decentralized Exchanges for Play to Earn?
Uniswap is the most accessible, Ethereum-based decentralized exchange. It is available, for instance, to provide liquidity for SAND tokens native to the Sandbox game.
PancakeSwap is the equivalent of Uniswap, but running on Binance Smart Chain and offering pairings with Binance Coin (BNB) or Binance USD (BUSD).