Now, let's talk about decentralized exchange. It's all under the category of Swap, which is basically exchange, swap one token for another token. Basically, what we're going to do in DeFi is something atomic. Within a decentralized exchange, it will be atomic and that if there's a problem with the transaction, then we revert to the original state. There's nothing that can happen. The middle person, for example, a centralized exchange might actually cause some issues. We've certainly seen issues where centralized exchanges basically had to say, no, you can't trade. This happened with Robin Hood recently. We're given the volume that they experienced. They said that you can't sell. This is something that doesn't happen in decentralized finance. That happens in centralized finance. Again, we've got the use of smart contracts, the custody funds for what we actually want to do in the swap. Again, when we do an exchange, it is only going to execute if everything, all the conditions are met in the transaction. You could even put the equivalent of a limit order into the actual transaction that if the price is above X, then I'm not going to buy and that is straightforward to do and the contract, again, would recognize as and the transaction basically reverse the original state, which means you're not buying anything. When we talk about decentralized exchange, we will use the word DEX, so D-E-X. That's the lingo. That's on the Word Cloud and decentralized exchange. As I said, is that you're basically dealing with an algorithm, a smart contract. There is no other mechanism. We'll talk about two different categories of how this works. The first category is order matching and the second one is an automated market maker. We'll spend a fair bit of time on the automated market maker, not as much time on the order matching, which today is awkward to do. Let me tell you why. Order matching, it's what we saw with the Coinbase screen, where you've got certain people that are willing to sell at certain prices and certain people willing to buy at certain prices and then there is some middle portion where there is a match. This is possible to do in decentralized exchange. Effectively, these are basically think of them as if the price gets to X, then I'm willing to sell or buy. This is like a reasonable thing to actually have within potential contract. Kyber is an example of this. It's very interesting if you go to their Platform. Usual way that it happens is that let's say I want to use Coinbase to buy device in Ethereum. I just have set up my account. With Coinbase, you need to actually transfer some dollars to Coinbase to get started. I don't have any crypto, but I want to buy some Ethereum. I need to link my bank account to Coinbase and the transfer takes 2-3 days. Then I would have a dollar balance at Coinbase, and then I could use that dollar balance to buy, let's say some Ethereum. The Ethereum would be held by Coinbase, so Coinbase would have the private keys. I could at some point repatriate the Ethereum and they would give me the private keys. But most people just have Coinbase custody at the keys. With Kyber, it's very interesting because there's no transfer of dollars or anything like that, you just link your MetaMask wallet for example, which we'll set up in Module 4 of this course and you're ready to go immediately. My MetaMask wallet might have USDC in it, so US dollar equivalent, but you're ready to go. There's no sense of transferring. Again, this is just one of the protocols that is basically on chain and that is one of the disadvantages right now, because doing stuff on chain is expensive. To have a transaction on chain that is necessary, but to have all of these potential transactions on chain that could be really expensive to pull off in terms of the current gas fees. This is again, exactly what it looks like, similar to the Coinbase screen. But this is what Kyber actually offers. But again, this is a good idea right now, given the cost of doing things on chain, other firms have got some off chain solutions, but if you go off chain, there's issues involved with that also. Again, this is expensive to do with the current technology. In the future, this could be much more viable. But in my opinion, probably the automated market-makers have got some advantage here. That's what we're going to do next.
