What Is a P2P DEX?

P2P DEX is short for peer-to-peer decentralized exchange. It is a blockchain-based application that supports peer-to-peer trading, which is any trade that occurs directly between two crypto traders without third-party involvement.

P2P DEXs propel the autonomous and free mindset in crypto, moving away from financial institutions and traditional finance.

Unlike automated market maker (AMM) DEXs (e.g. PancakeSwap or Uniswap) where users can trade with each other indirectly via liquidity pools, users of P2P DEXs (e.g. Liquality or AtomicDEX) transact directly with each other in a trustless environment.

There are several benefits to using a P2P DEX over AMM DEXs and centralized crypto exchanges.

P2P DEXs have a clear security advantage because they allow users to trade funds from their own non-custodial wallets. AMM DEXs require market makers to lock funds into smart contracts. They are more vulnerable to hacks because large sums of funds are often pooled into a single crypto address. As seen with incidents like the $650 million Ronin bridge hack, AMM DEXs often have a small group of validators who are responsible for keeping liquidity provider funds secure.

Essentially, P2P DEXs provide a more trustless, decentralized and secure solution for liquidity providers because funds aren’t pooled together. While P2P DEXs sometimes lack liquidity, the main benefit is that users, especially liquidity providers, don’t need to worry about issues like impermanent loss or smart contract exploits.

Secondly, many of them use trading tools, like atomic swaps, which makes these platforms cross-chain and cross-protocol compatible. For example, two users can trade Bitcoin (BTC) with Ethereum (ETH) or Shiba Inu (SHIB) with Dogecoin (DOGE), across their respective blockchains without needing a trusted third party.

Additionally, P2P DEXs also provide a greater degree of anonymity compared to centralized exchanges since platforms don’t require users to complete a formal registration process or submit personal information.