As a DeFi trader, you’re often faced with finding the best swap prices and lowest slippage on decentralized exchanges (DEXs). That could be very frustrating, time and resource-consuming as there are dozens of DEXs to choose from.
What would make this easier would be a tool that gives traders info on which DEXs offer the best swap rates, lowest slippage and highest liquidity. That’s where a DEX aggregator comes in.
So, what exactly is a DEX aggregator?
DeFi Aggregators in a Nutshell
DEX aggregators allow traders to get information on liquidity and swap rates from various DEXs or liquidity sources on one dashboard. This way, traders can get competitive prices from these different sources and choose the best option to trade in just a few clicks.
A DEX aggregator is just such a tracker. From a single dashboard, DEX aggregators link to multiple DEXs to find the optimal liquidity pool for any token pair.
Within that single interface, DEX aggregators check liquidity pools across hundreds of DEXs, and even across different blockchain networks. For instance, 1inch supports token swaps across ten networks.
Think of how you use the Google Alert tool to aggregate information on say DeFi news. Links to a set of articles on related topics are automatically sent to your mailbox. DeFi liquidity aggregators work in a similar pattern.
They collect data from various DEXs and liquidity sources to display them on one dashboard for the trader to make better informed decisions on the best rates. Think of DEX aggregators as the search engine for standalone DEXs and liquidity pools.
Aggregators identify liquidity from these sources to give the trader the best rates and minimum slippage.
Why are Aggregators Important?
Let us say you are a crypto whale. Even a single liquidity pool on the most popular DEX would not be enough for the number of tokens you want to swap. In that case, you would go to a DEX aggregator, which would find the most optimal trading position with the least slippage possible.
Moreover, even if a famous DEX has high liquidity pools, that doesn’t mean they would offer a better-executing price. There may be a liquidity pool with lower fees with a lopsided token pair ratio that would be a perfect match for such a specific trade. A DEX aggregator makes this possible without any hassle.
Another huge benefit is that even crypto whales don’t have to reveal their identity to trade. Typically, whales go to over-the-counter (OTC) exchange desks for large-volume trades. The problem is they require by law to register using the know-your-customer (KYC) procedure.
This is unnecessary on both DEXs and DEX aggregators because the entire protocol is automated and, you guessed it, decentralized.
Takeaway
While aggregators are still developing in DeFi, their relevance cannot be overemphasized. This is why the DeFi sector will experience the creation of more aggregators in the future and increase the demand for cross-chain solutions.
Aggregators give new definitions to advanced user experience, accessibility and simplicity.
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