Decentralized Exchanges : What It Entails #002

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Hello great minds,

It is a wonderful opportunity to come before you all today again to discuss on an issue of great importance in the cryptospace.

I trust you are all doing perfectly fine and you are all enjoying your activities in the community.

In our last discussion, we learnt about decentralized exchange and we examined it's historical concept and also it's definition in full.

Today, we shall continue our discussion on decentralized exchanges, please stay with us and enjoy this great content.

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UNDERLYING TECHNOLOGIES OF DECENTRALIZED EXCHANGE

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We shall be examining the underlying technologies of decentralized exchanges, this means we shall be learning about the technologies that makes up a decentralized exchange, please stay tuned.

• SMART CONTRACT:

Smart contract is the backbone of decentralized exchanges, it is an automatic execution mechanism that executes a trade once the terms and conditions of the trades are met.

This smart contract helps to eliminate the need for a middleman by automatically executing trades when certain conditions are met.

Smart contract are Immutable and tamper-proof thus guarantee trust and security of it's financial transactions.

In a decentralized exchange for example, when a trader places a buy trade at certain conditions, he doesn't need to be reminded of his trade, the smart contract automatically helps him to execute his trades.

• BLOCKCHAIN INFRASTRUCTURE:

Blockchain platforms such as ethereum,solana, binance smart chain are platforms in which decentralized exchanges are built on.

These platforms help to provide underlying infrastructure that aids the smooth running of transactions on the decentralized exchange.

With the help of this blockchain platform, it becomes possible for transactions to be carried out more effectively and securely without fear of loosing coins.

• LIQUIDITY POOLS:

Liquidity pool is another underlying technology of a decentralized exchange.

Majority of the decentralized exchanges makes use of liquidity pools where users can make a deposit into the pool.

These deposits are used in trades facilitations and liquidity providers inturn, earn from being a liquidity provider.

Being a liquidity provider means you assist in the functioning of the exchange, a decentralized exchange without enough liquidity will lack potential investors.

Liquidity as we know is understood to be the ease at which trades are executed in the market.

Providing liquidity is another interesting method of earning cryptocurrency from the market.

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CONCLUSION

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We have examined another key concept for the operation of a decentralized exchange.

We have explained some of it's underlying blockchain technology which helps in facilitating it's operation.

On our next discussion, we shall learn more things about the operation of a decentralized exchange.