I have experimented a little in trading outside of a centralized exchange. Although there was a learning curve associated with using centralized exchanges, it was almost nothing compared to what I had to learn to participate in decentralized trading.
A few first steps and things:
- I had to set up a non-hosted wallet. I did a fair amount of research on the variety of software available to create and operate a non-hosted crypto wallet. I tried MetaMask, Phantom, Crytpto.com Onchain, and a few other software apps. I found that the wallet I created with MetaMask was also accessible using Phantom and Crypto.com Onchain, but there are differences between the software apps. For example, I couldn’t find a way to connect MetaMask to the Solana network whereas the others did.
- I had to send some crypto to the non-hosted wallet. The Ethereum network is/was the primary network for decentralized trading. Ethereum is a ‘Layer 1’ network. Trading on this network requires that some amount of Ethereum tokens be available in the wallet. I bought some Ethereum in my Centralized Exchange account and transferred it to my non-hosted wallet. I found that the ‘gas fees’ associated with trading on the Ethereum network were hugely excessive and unworkable for someone who was merely dabbling with a few hundred dollars worth of crypto.
- Fortunately, it is possible to trade on networks other than Ethereum. For example the Polygon network, which has ‘gas fees’ in POL, or the Solana network, which has ‘gas fees’ in SOL. These and many other ‘Level 2’ networks have been built on top of the Ethereum network and have found various ways of significantly reducing transaction fees. So I bought some SOL and some POL in my Centralized Exchange account and transferred it to my non-hosted wallet.
- ‘Gas Fees’ are associated with the cost to run a network and confirm transactions. There are gas fees for every transaction and the fees change depending on how busy the network is at the time. Gas Fees are typically paid in the ‘native’ token of a network. (eg. Ethereum is ETH, Polygon is POL, Solana is SOL). Some of the native token is required in the wallet when making transactions, to pay gas fees, if not for the entire transaction.
- Trading can be undertaken through the various wallet software apps. The apps will typically display the fees associated with the transaction. The fees will sometimes be displayed in the native network tokens, so it isn’t a particularly intuitive thing to understand the value of fees without pulling out a calculator and converting to USD or CAD.
I found the DEX Screener (dexscreener.com) to be useful for reviewing the decentralized market of crypto tokens. There were thousands of different tokens available. The screener was useful for sorting through them by various criteria to see what was attractive or not.
The decentralized market has a wild west frontier feel to it. Anyone can mint new tokens and apply to have them listed. Sorting by creation date/time, I realized that some tokens were only minutes old, brand new. Also, I found that there are few rules about what is required to list a token. Caution is required.
Besides using the wallet software apps to trade, it is also possible to trade on a web-based crypto swap site. Some examples are matcha, uniswap, raydium, stealthx, jumper, or coindcx. To use these, I provided my Public Address for the native token and the transaction occurs directly to/from my wallet. Whether trading through my wallet software or through a web-based site, I found the entire experience to be somewhat bewildering, particularly in regard to how much I paid in total and how much I received in the end. Working in native crypto tokens instead of USD or CAD is confusing. Trading one type of crypto for another type of crypto is confusing in terms of understanding value, especially when there is a large spread between bid and asking prices. Fees associated with transactions is confusing, being comprised of network fees and platform fees.
On top of this confusion, a couple of transactions I did ended up in being ‘rug pulls’. All or almost all of the liquidity associated with a particular token was withdrawn in one transaction, leaving nothing for those left holding tokens, like me. Things looked good, with prices going up nicely, and I was almost ready to sell and make a profit when the liquidity was abruptly sold off. I’ve since learned about lots of scams of which to be wary and how to better avoid them. But this is decentralized trading with no centralized agency to regulate and police such things, so there is no recourse. I found that it’s best to learn to minimize the risks by taking time to research each token in as much depth as possible before trading into it.
So, I won’t say my experiences in decentralized trading to date have been either successful or satisfying. There is one guy I’ve been watching on YouTube (@SajadAli) who seems to have some good suggestions for improving the experience and avoiding risks. But at this point, I just wary and have decided to focus on trying to be successful using centralized markets.
As always, this isn’t advice, but an explanation of my experiences. Do your own research.
Thanks, Jim.