We are seeing unprecedented user migration to DeFi today. 2022's crypto crashes and the recent FTX collapse have highlighted the importance of decentralized solutions. Everywhere, users are moving to decentralized exchanges (DEX) and decentralized wallets.
Closer to home, ApolloX will be winding down the ApolloX CEX in phases from November 2022 to January 2023. This move will focus our resources on the development of ApolloX 2.0 and improve on the degree of decentralization of the ApolloX DEX ecosystem.
As a DeFi/DEX beginner, you may feel overwhelmed. In this guide, we will use the ApolloX DEX and other prominent exchanges as examples to illustrate how you can transition to DEX!
Benefits of DEX
DEX is the superior option to CEX for more autonomy, privacy and security. A DEX is ‘non-custodial’, thus it does not hold custody over your assets — thus reducing counterparty risk. DEXes also do not require KYC checks and account registration.
Trading on a DEX
On a CEX like ApolloX CEX, you likely had to register an account and deposit assets to the exchange’s hot wallets to start trading. On DeFi platforms like ApolloX DEX, you simply need a decentralized wallet.
1a. How to create a decentralized wallet
Decentralized wallets are non-custodial. You, the user, hold control over your funds. Examples of crypto wallets are SafePal Wallet, Trust Wallet or ApolloX DeFi Wallet. Many traders have a non-custodial wallet for daily trading and a cold hardware wallet like Ledger or Trezor for their long-term holds.
We will use the ApolloX DeFi Wallet as an example on how to create a non-custodial wallet. During setup, the wallet will prompt you to
- Set a password for convenient daily login
- Generate and verify a seed phrase of 12 random words.
Write the seed phrase down on paper, make a few copies of it, and keep them in a safe place. The seed phrase is your master recovery option in case you ever forget your password or lose your wallet.
Note: If you're setting up an ApolloX DeFi Wallet, remember to download the ApolloX mobile app from Apple App Store or Google Play Store first.
1b. How to add funds into wallet
To add funds into your wallet, you can
- Withdraw existing funds from your CEX account to your decentralized wallet
- Buy crypto on a CEX you already use and send it to your decentralized wallet
The withdrawal address is your decentralized wallet address, no matter the asset you bought. However, you should check which blockchains the wallet supports. For example, if your wallet only supports BNB Chain, transferring ETH to the wallet will likely give you a wrapped version of ETH, not ETH itself.
1c. How to connect wallet to DEX
After adding funds, you can now connect to a DEX and start trading.
There are multiple blockchains that DEXes support as DeFi traders tend to interact with different networks. On the ApolloX DEX, BNB Chain, Ethereum and Arbitrum are supported. Choose your preferred network.
Now, connect your wallet to DEX by clicking on the ‘Connect’ button, usually located on the top right of the screen. Your wallet will prompt you to digitally sign a message to confirm the connection.
2a. How to trade on a DEX
Congratulations, you are now ready to start trading! Continue reading to find out more. We will use ApolloX DEX as the main example.
Deposits & Withdrawals
Trading spot is straightforward. For crypto derivatives, there is an additional step of depositing funds as collateral. For example, the ApolloX DEX offers trading of USDT-based perpetual futures with leverage. As perpetuals are financial contracts and not crypto assets themselves, users have to deposit funds before trading.
Make sure you know what collateral the DEX accepts. On ApolloX, up to 9 cryptocurrencies are accepted as collateral under Multi-Assets Mode.
When cashing out, you would have to withdraw your funds back to your decentralized wallet.
Open Position (Leverage & margin)
Some DEXes offer enhanced trading options like leverage and margin. Leverage shows you how many times your initial capital is multiplied, while margin is the amount of funds you need to open and maintain your position. In general, the higher your leverage, the higher the risks. Let’s illustrate this with an example.
Leverage allows traders to use borrowed capital to trade on an exchange. Let’s say you want to open a $1,000 short position for BTC with 10x leverage. You would need to have 1/10 of $1,000 as collateral for your borrowed funds — $100. If the price of BTC drops 10%, you will earn a net profit of $100. Without leverage, you would have earned $10.
Using the same example, if the price of BTC rises 10%, you will make a loss of $100. As your collateral is only $100, your position would be liquidated. However, exchanges often provide margin calls before liquidation happens. ApolloX DEX allows users to sign up for margin calls and liquidation notifications via email/SMS/Telegram and Discord.
There are two types of position modes on derivatives exchanges: One-way Mode and Hedge Mode. Hedge mode affords more flexibility in your positions.
As a CEX user, you may be familiar with different order types like Limit, Market and Take Profit/Stop Loss. Order book DEXes have the capabilities to support multiple order types as well while swap DEXes often do not.
Read more about order types on ApolloX DEX here!
3a. Participating in a DEX ecosystem
Like CEXes, you may find that DEXes often have rewards programs and incentives. It’s a good idea to participate in its ecosystem to reap more gains!
Win Platform Rewards
Look at the incentive programs the DEX has. Staking rewards and trading rewards are some of the most common types.
- Staking: Similar to CEXes, to earn APR, you would be expected to buy and stake one or more of the platform’s tokens.
- Trading Rewards: Some DEXes also offer automatic Trading Rewards, where traders earn “cashback” on each trade. For example, each trade on ApolloX DEX earns traders an amount of APX, ApolloX’s native token, essentially offsetting their trading fees!
- Leaderboard Rewards: The best traders on each platform may also receive rewards, so check out for any Leaderboard Programs.
Referral Programs are commonplace in CEXes. DEXes have them too! For example, ApolloX DEX’s Referral Program rewards referrers with a 20% commission from their referees’ trading fees. As ApolloX DEX is decentralized, instead of binding an account number or email like what CEXes do, ApolloX generates a unique referral link that referrers can share with their circles.
Participate in DAO
DAOs are a concept unique to DeFi.
- DAO stands for decentralized autonomous organization and is a novel way of managing an organization.
- To set up a DAO, a developer or a group of developers create smart contracts. These smart contracts contain rules to guide the governance of the DAO and have to be deployed on the blockchain.
- DAOs do not need centralized management e.g. CEO, COO.
- Decision-making is done via creating proposals and majority voting on voting portals.
- DAOs are open to all but usually require members to buy or own the platform’s governance token (used for voting).
Many DEXes have formed exchange DAOs to co-develop the platform together with its community, who are usually the exchange’s token holders and users. In this way, no centralized management is required and all members have a say in the DAO. Examples of exchange DAOs include Uniswap DAO and ApolloX DAO.
DAOs usually also incentivize further participation among token holders by offering APR rewards e.g. ApolloX DAO lets users lock up its APX tokens for the triple benefit of obtaining voting rights, boosting trading rewards and earning staking rewards.
Ultimately, as a DEX user, you should be aware of the latest updates and actively participate in the DEX’s ecosystem.
The move from CEX to DEX
DEXes are just one sphere in DeFi. We hope that this guide was helpful and that your foray into DEX sparks off a genuine interest in the rest of DeFi!