We'd think that decentralized exchanges are just the same as centralized exchanges in terms of functional purposes which are

  1. trading
  2. storing crypto assets

However, the second item is not readily apparent on decentralized exchanges. Uniswap, for example, doesn't act as custodian of your crypto to just hold it there on the Uniswap exchange. Or does it?

All I could think is that the decentralized equivalent of storing assets on centralized exchanges are the liquidity pools made by decentralized exchange participants. Is this the correct analogy to explain how the second item is represented in DeFi?

If so, how to properly cement the analogy, given that liquidity pools are in many ways a cloud representation of many participants' holdings floating in thin air, in many ways very abstract and loosely defined. The concept still doesn't square up with the metaphysical act of storing holdings as would be done on centralized exchanges

  • bad analogy. Token contracts can have bugs, and liquidity pools can be drained by hackers, there are lots of examples of this you can find in google. Custody by some authority would be better for big investment firms – Nulik Jan 31 at 3:26
  • if liquidity pools (of legitimate tokens) can be drained by hackers, why all the hype about DeFi? Are we actually much safer using centralized exchanges rather than casting ourselves out to our own devices? My question is, if not liquidity pools, what is the decentralized equivalent? – user610620 Jan 31 at 3:29
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    on the blockchain all is safe as the expertise of the developers who created the contract. A complex contract poorly designed will have bugs, if not now, a year (or two) later for sure. Using poorly developed contract is as unsafe as poorly configured centralized exchenge. Centralized exchange also suffers from the same: human bugs. You can have an unhackable centralized exchange if you follow established security procedures and automatize everything – Nulik Jan 31 at 3:38
  • is it true that there is no storing of crypto assets (on an exchange) when it comes to DEX? That, instead of trading on an exchange, which requires moving crypto from my possession into the temporary custody of a centralized exchange just to trade, with DEX, we are instead directly trading from our own possession/custody? Thus the rebranded verb "swapping"? – user610620 Jan 31 at 3:40
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    I don't know of a website that does precisely that, you might check Etherscan API , but the official geth client will have all the transactions, you simply get all transactions of a block, and check the To address, if it is nil, then a new contract was deployed. To get the code of the contract you call getCode() function. And to read all the storage of the contract you need to use trie package of go-ethereum , you can iterate through contract storage with iterator functions and check its content, the are posts in Medium on how to do this, just google "merkle trie ethereum" – Nulik Jan 31 at 12:48

No, decentralized exchanges aren't custodial. You have total control over your assets as only you can withdraw them (or permit someone else to do it if the contract enables that).

  • total control of our assets, but where are we putting them exactly when participating in DeFi? I don't see a Funding button on decentralized exchanges. Just buttons to engage in trading, which they just rebrand as "swapping". If we don't even deposit them in to the DEX, how can we even withdraw them? – user610620 Jan 31 at 3:31

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