DEX Aggregator

Updated on February 23, 2024
Article byJyotsna Suthar
Edited byShreya Bansal
Reviewed byDheeraj Vaidya, CFA, FRM

What Is A DEX Aggregator?

DEX Aggregator is a browsing platform that collects trading data from multiple decentralized exchanges (DEXs) and presents them in a single interface. The main intention of these aggregators is to allow traders to trade (swap) crypto tokens in one place. Thus, there is no need to switch to different exchanges.  

What Is Dex Aggregator

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One-inch DEX aggregators were the first to be developed in 2019 during the hackathon competition. It took only 18 hours to develop and later became popular in mid-2020. It eventually allowed traders to access different liquidity pools from DEXs. Likewise, the liquidity of the tokens was also enhanced. 

Key Takeaways

  • DEX aggregator meaning refers to specialized protocols that enable traders to access and compare data from various decentralized exchanges (DEXs), such as swap rates and token prices, all on a single platform.
  • The 1-inch aggregator, launched at a 2019 hackathon, quickly became a prominent Dex aggregator, achieving significant recognition by mid-2020.
  • In this system, traders submit a swap request to the aggregator, which then selects the most suitable DEX to fulfill the trade based on the best available rates and conditions.
  • These aggregators streamline the trading process, reducing the time and costs associated with trading fees and slippage, and they provide tools for monitoring real-time token prices.

DEX Aggregator Explained

A DEX aggregator is a tool within decentralized exchanges that operates using blockchain technology. It gathers data from various sources, such as different DEXs, and consolidates this information on its platform. It enables traders to easily swap and trade different token pairs in one location, eliminating the need to navigate across multiple exchanges.

How Does Dex Aggregator Work

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It functions similarly to a search engine for cryptocurrencies, allowing users to explore a range of tokens and execute transactions in one place. Examples of this platform include 1inch, Matcha, Meta DEX aggregator, Swapzone, and Defillama.

The operational mechanism is comparable to that of an e-commerce platform. Just as an e-commerce site displays a variety of products along with their details on a single platform, crypto aggregators do the same with information from various crypto exchanges. This information typically comprises crypto tokens, liquidity pools, trading pairs, order books, and swap rates.

When a user inputs a specific token type and trade category, the DEX aggregator’s algorithm analyzes the swap request. It then reviews its list of DEXs to identify the most suitable options. After a user selects a DEX, the aggregator facilitates the request to the chosen DEX via a blockchain network, potentially securing the transaction within a smart contract for efficiency.

The aggregator’s selection process is influenced by factors such as trading fees, market prices, slippage, and available liquidity. If a match is found that suits the trader’s requirements, the aggregator delineates an optimal trading route. Subsequently, users can complete their trades and receive the swapped tokens at a favorable rate without directly accessing the individual DEX. Additionally, they can monitor real-time cryptocurrency prices and track their order status, which can aid in achieving better trading outcomes.

Examples

Let us look at some hypothetical and real-time examples to comprehend the concept better.

Example #1

Suppose Carol is a portfolio manager who manages the assets of her clients. Apart from the client’s assets, she also manages her portfolio. And in recent years, Carol has also added crypto assets like Bitcoin, Ethereum, and seven other tokens. However, she needed help locating these tokens in different cryptocurrency exchanges and trading them. So, Carol decided to install an aggregator from the DEX aggregator list.

With this tool, she can locate trading pairs from different liquidity pools and trade them. Also, Carol could track the real-time prices on the aggregator. Therefore, the need to switch to DEXs is ultimately reduced. Plus, it also saves the trader time, effort, and extra trading fees. 

Example #2

Matcha, a decentralized exchange (DEX) aggregator from 0x, has enhanced user trading experience with its new feature, Matcha Auto. This function significantly increases the likelihood of transactions being included in the next block, reducing the risk of failed trades. Additionally, Matcha has broadened its scope, with its DEX liquidity sources expanding by 47% and the number of tokens indexed soaring from 11,000 to 3.7 million. This expansion allows users to access a wide range of trading options across various decentralized exchanges.

The platform’s ability to aggregate prices from different DEXs, like Uniswap and SushiSwap, optimizes trading by finding the best prices for assets like Ethereum (ETH). It achieves this by intelligently splitting a trade into parts and routing them to different markets. Recent data underscores Matcha’s effectiveness: over the past 30 days, it has attracted roughly 16,900 users and facilitated 60,310 trades, with a total volume of nearly $529 million. This capability makes Matcha increasingly valuable in a complex and growing crypto market with numerous tokens and exchanges.

Benefits

This platform provides various incentives to the crypto users performing trade. Let us look at them.

1. Offers large platter of DEXs

One of the foremost benefits of these aggregators is the variety of DEXs they offer traders. These platforms collect the data of different crypto exchanges and offer them in one plate. As a result, it is easy for traders to compare features and trade different tokens. Also, they can quickly glance through the list of exchanges and select their choice. Thus, the execution of trade is instant and secure. 

2. Better comparison of liquidity pools

Since the DEX aggregator list has various exchanges updated, it becomes easy for the traders to compare among them. They can choose within the DEXs with minimal trading fees and slippage (current market price less executed trade price). Plus, the investors can measure the liquidity provided on these exchanges. As a result, they can make sound decisions for their transactions. 

3. Adds additional security layer

Users can easily trade tokens on these aggregators with the most minor requirements. It includes a crypto wallet and internet connection for signing up for the aggregator. Also, the process of registration is quite simple. So, when the trader requests the swap, the aggregator creates a smart contract for advanced security. As a result, anonymity and integrity are automatically maintained.  

4. Complete authority of tokens

These aggregators provide enough control of tokens to the crypto users. They can trade directly from the crypto wallet, unlike centralized exchanges that fail to offer this feature. Hence, the risk of cyber-attacks is also reduced.   

5. Unified interface

The DEX aggregators create an interface that displays various elements on the screen. Thus, it becomes a handy tool for crypto traders to track real-time prices of tokens. Also, it shows the order book history of transactions conducted. 

Risks

Following are some risks possessed by the best DEX aggregators. Let us look at them:

  1. DEX aggregators depend on price oracles for real-time pricing information. These oracles could display incorrect prices, potentially leading to trades being executed at unfavorable rates.
  2. The liquidity on DEX aggregators is directly linked to the liquidity of the DEXs they aggregate. Low liquidity on these exchanges can make it challenging for traders to execute trades efficiently on the aggregator platforms.
  3. Unlike centralized exchanges, where the platform has custodial responsibility, in decentralized systems, users are responsible for their private keys. Losing a private key in a decentralized setting means potentially losing access to funds with no recourse for recovery.
  4. A complex or user-unfriendly interface on DEX aggregators can deter traders, leading them to seek alternative platforms. A well-designed, easy-to-navigate interface is essential to facilitate efficient trading and access to features like liquidity pools and DEX comparisons.

DEX vs DEX Aggregator

Although DEX aggregators are components of decentralized exchanges (DEXs), they have different characteristics. Let us look at their differences:

BasisDEX AggregatorDEX (Decentralized Exchange)
MeaningA platform that aggregates data from various DEXs, presenting it in a unified interface for easy comparison and trading.A type of cryptocurrency exchange that operates without a central authority, facilitating direct peer-to-peer cryptocurrency transactions.
PurposeTo provide users with a comprehensive view of trading opportunities across multiple DEXs, optimizing for the best trade execution.To enable direct cryptocurrency trading between users, reducing or eliminating the need for intermediaries and often lowering trading fees.
ComponentsFeatures tools for viewing aggregated order books, transaction histories, lists of DEXs, swap rates, gas fees, and live price tracking.It comprises components like order books (or automated market makers), liquidity pools, and smart contracts. Sometimes, it integrates oracles and interacts with external aggregators.
ParticipantsActs as an intermediary that connects traders to a variety of DEXs for optimal trade execution.It includes liquidity providers, traders, and occasionally external entities like aggregators interacting with the exchange.
GovernanceOften governed by sophisticated algorithms to optimize trading, some may have additional governance structures (e.g., token holder governance).Transparent smart contracts govern it. Some DEXs incorporate decentralized governance models where decisions are made by the community or token holders.

Frequently Asked Questions (FAQs)

1. How to build a DEX aggregator?

Following are the steps to build a DEX aggregator:
● Conduct market research and list the prominent features. 
● Prepare the infrastructure plan on a blockchain network. 
● Create and design a simple yet exciting interface for the aggregator. 
● Develop the security layers and protocols for the same. 
● Conduct testing for the removal of malicious actors. 

2. How does the DefiLlama dex aggregator make money?

Although DefiLlama works on a 0-swap fee mechanism, it does make some money in return. When traders use their aggregator, they charge nothing for swaps. But, there is always an option for a referral for revenue sharing. So, when someone joins, a part of the reward goes to the platform as a fee. 

3. Is DEX aggregator a Blockchain?

It is not a blockchain but works on a blockchain-based protocol. Likewise, even DEX is built on the same and is not a blockchain. 

4. What are the types of DEX aggregators?

The six major types of aggregators include off-chain and on-chain order books, aggregators for smart order routing (SOR), liquidity aggregators, and hybrid and market maker aggregators (MMA). 

This has been a guide to what is a DEX Aggregator. Here, we explain the concept along with its examples, benefits, risks, and comparison with DEX. You can learn more about financing from the following articles –

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