The Smart Contract Mechanism of Decentralized Exchanges (DEXs)
One of the main prerequisites for decentralized exchanges is the provision of smart contracts in blockchain technology. Earlier I have done many posts about smart contracts where I have tried to say that a smart contract is a contract that automatically executes the contract based on certain conditions. Smart Contact is a must for decentralized exchanges. Since trading takes place on exchange sites, the smart contract will act as a middleman and automatically execute orders for any trading.
When blockchain technology-based trading is done through Smart Contracts on Decentralist Exchange, there will be no opportunity for any user's currency to be deposited in any private ownership, that is, the exchange site itself will not know how much currency is being deposited from whom. It can be seen on the centralized exchange site that if the owner accumulates some currencies, they want to do business with them, which is impossible through smart contracts because whoever has tokens will be automatically executed instantly through smart contracts based on certain conditions. No middleman will be needed here. And by doing this, time will be saved as well as the work will be very fast and efficient. The most important thing is that transparency will be ensured here.
Through smart contract, a new address is created within the exchange site and whoever trades to that address will transfer the corresponding currency or token. When the receiver fulfills all the conditions, the token or currency will be automatically transferred from this new address to the receiver's address. Here in the middle, a new account will be automatically created in which the sender's money will be deposited and will go to the receiver. By doing this, no party can ever get another currency without fulfilling the relevant conditions, i.e. without transferring the currency of their trading amount. If the conditions of the contract are not met, then the funds can be easily refunded from the newly created account. In this way, transactions on the exchange site are done automatically and efficiently through a smart contract.
There are a few other things involved in this mechanism which I will try to share in the next posts.
~ Regards,
VEIGO (Community Mod)
Valuable and educative content you have shared here on smart contract mechanism of decentralized exchanges, really insightful. Thanks for sharing
The logics behind smart contract are not easy to understand but must appreciate that you have explained it well in an easy language that even a new user and understand. It's an informative article that more people should go through
Smart contracts is really playing a vital role especially in decentralized exchanges. Well written