[TEST] The Problem With Decentralized Exchanges—And How To Solve It

Despite the proven economic value of decentralized exchanges (DEXs)—Uniswap, for example, recently traded more than $440 million in just 24 hours—they come with some serious baggage that's hindering the growth of decentralized finance (DeFi).

The requirement to process orders through smart contracts causes latency, a lack of liquidity leads to price slippage, and high transaction costs are a barrier to wider adoption.

Some exchange operators have stepped in with solutions that aim to help lower the barrier to entry for people with fewer crypto assets. But democratizing access to the crypto economy has created another intractable challenge tied to decentralized exchanges, and that’s cross-chain bridging.

Because tokens can be listed on multiple exchanges, traders need to transfer their coins between chains before they’re able to do anything with them—and that can be costly, not to mention an unpleasant user experience.

It can cost anywhere between $200 and $500 just to bridge assets from one chain to another—and that’s before having to pay fees to actually execute transactions, said Giorgi Khazaradze, CEO and co-founder of Aurox, a crypto trading terminal that combines a centralized exchange with a decentralized lending and borrowing platform.

“It’s like wiring myself money to another bank and then having to spend hundreds of dollars just to get my own money,” Khazaradze told Decrypt.

Building bridges

It’s not hard to imagine why decentralized exchanges, and decentralized finance in general, have failed to win over institutions and achieve mainstream retail adoption.

The fees are high—and highly variable—and the user experience is confusing.

“An institution will look at this and say, 'Well, this is kind of weird, and so I don’t really want to touch it',” Khazaradze said. “And the same is true for retail users—they're not going to spend their time figuring out this new technology.”