Part 3: DEX's and Sidechains


DEX: What does a decentralized exchange do? What is DeFi?

Uniswap is the largest decentralized exchange (or DEX) operating on the Ethereum blockchain. It allows users anywhere in the world to trade crypto without an intermediary. UNI, the governance token that allows users to vote on key protocol changes, is the fourth largest cryptocurrency by market cap on Coinbase as of April 2021 — with a total value of more than $18 billion.

Uniswap was one of the first decentralized finance (or DeFi) applications to gain significant traction on Ethereum — launching in November 2018. Since then, numerous other decentralized exchanges have launched (including Curve, SushiSwap, and Balancer), but Uniswap is currently the most popular by a significant margin. As of April 2021, Uniswap had processed over $10 billion in weekly trading volume.


Why are there so many DEXs with “Swap” in the name?

It’s because Uniswap, like most crypto protocols, is open source, meaning anyone can both see exactly how it works and adapt the code to create a competitor.

In recent years, a large number of DEXs adapted from Uniswap’s code have launched, including food-named competitors like SushiSwap and PancakeSwap. (If you want to read more, check out this issue of Coinbase’s Around the Block newsletter.)

 

Sidechains

Blockchain doesn't need any introduction now, and most of us know how much potential this technology holds. The sudden invasion of this technology in the industry has garnered the attention of many industry leaders. From Mark Zuckerberg to Jack Maa every great mind has mentioned that the blockchain could revolutionize the world with its great benefits. However, like everything the decentralized system has some limitations and flaws. The major issue with the blockchain is scalability, for instance, Ethereum can process only 15 transactions per second. The limited capability of carrying out the processes restrains the blockchain from going mainstream. But, there is another emerging technology that could boost up the blockchain, and that are Sidechains. In the coming years, the technology could widespread across the industry to enhance the existing blockchain network. Maybe you have already gone by this term, or you are hearing it for the first time, but don't worry by the end of this article you will know everything about sidechains.


Blockchain network is the most secure and reliable one that we have right now and it could possibly change the world in the coming days. But, the existing Blockchain system has some flaws that could be optimized for improved performance. The blockchain technology requires a new architecture design that could deal with the scalability. Sidechains are the enhanced mechanism that enables the process to transfer different digital assets separately from one blockchain to another, and that can also be transferred back to the original blockchain when required.


If the above-mentioned definition of sidechain is a bit technical then here is the layman description that could help you in understanding it.

First, you need to know that the existing blockchain or parent blockchain is referred to as the ‘main chain.’ Now consider a highway busy with ongoing cars on it and there are a series of adjacent roads also. The highway is the main chain on which the transactions or processes are going in the form of a car, and adjacent roads are sidechains (where cars could go faster). Besides, the roads could be joined to the highway anytime. So, the transactions (or cars) going on adjacent roads with high speed could scale the entire blockchain system for increased number transaction per unit of time.


Now, the important point is that there could be multiple sidechains in the system not only for transactions but different functions also. One could be for computations, and another sidechain could be for speeding, depending upon the factors of improved processing. With this way, the overall load and work on blockchain network could be distributed among sidechains.


How Exactly Do Sidechains Work? Click Here for all the details!

What about the security?

The core reason for moving towards the blockchain is the decentralized system that ensures the maximum security to the users. So, what about the sidechain, are these as secure as the original blockchain network? Yes, these chains are as reliable as the main chain. Besides the cherry on the top is that for security, the sidechain is on their own, they don't rely on the parent chain. This means any disturbance or problem in the main chain won't affect the sidechain, beside the sidechain will keep it issues within its network and won't let pass any of them to the main chain. Along with this, the sidechain requires different minin