Do DEX Aggregators Make a Difference?

31.10.2023

Disclaimer: The Industry Talk section features insights by crypto industry players and is not a part of the editorial content of Cryptonews.com.

DEX aggregators allow crypto traders to tap into the full spectrum of onchain liquidity, saving them from trawling decentralized platforms in search of the best price. Some of the more advanced aggregators even tap into CEX liquidity too, allowing traders to access thousands of crypto assets in one place.

Despite aggregators offering a superior service to individual DEX and CEX, the leading DEXs routinely record more volume than aggregators. There are numerous reasons for this, including lack of awareness among traders and reluctance to stray from a familiar exchange. This latter factor is understandable since humans are hard-wired to crave routine. If a DEX has worked well the last 10 times, you’ll likely use it the next time too.

For traders willing to try alternatives – even if that means leaving the comforting interface of their favorite DEX – aggregators have a lot to offer. But are they better than the average DEX? And how does one even define better? Let’s dive in and settle this debate once and for all.

Let’s Talk About DEX

A DEX is a decentralized exchange that anyone can use to swap between two tokens onchain. The entire process is non-custodial, meaning the user retains ownership of their assets at all times. DEXs generally don’t require KYC, making them accessible to crypto traders the world over.

Then we have the DEX aggregator, which is essentially a DEX of DEXs. It allows users to compare prices for tokens in liquidity pools on multiple decentralized platforms, with smart order routing revealing the most cost-efficient option. A few aggregators, such as Orion, also tap into CEX liquidity in what’s known as DECEX: decentralized and centralized exchange, but more on that later.

First, let’s talk trading volumes, which indicate where the bulk of the onchain action is going down. It’s clear that Uniswap remains the dominant DEX by some distance, having recorded over $2 billion in volume in the last 24 hours at the time of writing. Compare this with aggregators and you’ll see that Uniswap does in a day what DEX aggregator 1inch does in a month. There’s no getting away from it: DEXs do more business than aggregators for now.

The Evolution of Aggregators

The primary reason for using an aggregator – or for using any exchange – is price. If a platform can provide better pricing with less slippage then, everything else being equal (security; ease of use), it’s common sense to use it. To check this theory, try inputting a swap on Uniswap for, say, 1 ETH to USDT. Now do the same on a few aggregators and compare the difference. What do you find?

In every single case, the aggregator quote should be lower. In some cases by a negligible amount – in others by several dollars. This shouldn’t come as a surprise since aggregators have dozens of DEXs and protocols to choose from when searching for liquidity. What’s more surprising is that traders aren’t using aggregators every time. This can be partially attributed to demand for microcap tokens that are only available on a single DEX such as Uniswap or PancakeSwap. But when swapping between major pairs, such as USDC and WBTC, an aggregator wins every time.

Just as no two DEXs are the same when it comes to pricing or features, the same is true of aggregators. While some draw their liquidity from a single network (usually Ethereum), others, such as Defi Llama, are multi-chain. Then we have the DECEX model highlighted earlier, as pioneered by Orion. This connects not only DEXs, but centralized exchanges including KuCoin and OKX. Aside from the convenience of being able to access a broad spectrum of on- and off-chain liquidity, there’s the trading fees, which are set at zero for DEX swaps and around 0.5% for CEX.

Fees are worth mentioning when comparing DEX and DEX aggregator, or even DEX and CEX: make sure the platform you’re trading on is upfront about its fees to ensure you’re not being hit by hidden costs that aren’t displayed in the interface.

So Which Is Better?

For most benchmarks, including the most critical of all – price – a good aggregator is preferable to a good DEX. They might in some cases be drawing their liquidity from the same source, but nine times out of ten, the aggregator will offer better pricing. In some instances it’ll be by a few cents; in others by tens of dollars. And once you get to whale sized swaps, we’re talking thousands or even tens of thousands of dollars.

Speaking of whales, they didn’t get rich by throwing away tokens on inefficient DEX swaps: their fortune is attributable, in part, to being extremely picky about where they trade and at what price. There’s a reason large onchain trades are invariably routed through an aggregator: when you’re swapping that much size, relying on a DEX to provide the cheapest option is taking a huge risk.

There are some situations where a DEX can still prove preferable to an aggregator: