Decentralized Trading Platforms: What Changes When You Move Off the Exchange
The default first crypto app for most people is an exchange app. However, as users become more experienced and want to trade assets that are not listed on exchanges, they may consider moving off of these platforms.
When users switch from an exchange app to a decentralized trading platform, several key changes occur. Firstly, the list of tradable assets expands significantly because anyone can create a token with a pool, making it immediately tradeable. This is in contrast to exchanges where assets must pass through a rigorous process before being listed.
Secondly, custody arrangements change when moving off an exchange. On an exchange, users hold their assets in the exchange's wallet, but on-chain trading platforms like Banana Gun offer non-custodial solutions, where users authenticate themselves and control their private keys directly.
Thirdly, order types become more advanced on decentralized trading platforms. While exchanges typically only offer market and limit orders, on-chain tools add features such as trailing stop losses for tokens that run, copy trading with fixed sizing and market cap filters, and a 'buy once' rule to block repeat entries on the same token within seven days.
Lastly, the cost model changes. On exchanges, fees are usually a percentage of the trade, but on-chain, fees are smaller, ranging from 0.5% on Ethereum manual buys and limit orders to 1% on other chains. However, users also need to consider slippage, gas on failed transactions, and value extracted by sandwich bots.