Blog

What is a Decentralized Exchange?

In the crypto space, there are two types of exchange platforms, Cex (Centralized Exchanges) and Dex (Decentralized Exchanges). Decentralized exchanges are platforms on which you can buy, swap, and passively generate cryptocurrency. Let’s find out how to use Sushiswap dex.

Sushiswap is a leading Dex that can be found on different networks such as Solana (SOL), Fantom (FTM), Avalanche (AVAX), BNB Smart Chain (BNB), Polygon (MATIC) and others. Its simple layout and no jargon website make it a beginner-friendly Dex, that you’d be more than happy to trade on! They also have their coin named $SUSHI which allows owners to earn back when trading on their platform.

There are lots of benefits in trading in the DeFi space as there’s a wider range of possibilities:

• Earlier access to invest in coins and projects
• Access to more tokens, that aren’t available (yet, or at all) on Cex
• Privileged access to protocols such as Pool, Farming, Lending, Borrowing and more
• Higher APY (Annual Percentage Yield / Return on investment) on projects
• Higher APR (Annual Percentage Rate / Estimated reward) on projects
• A larger potential for big earnings (the earliest you invest in a project, the more you can earn)
• And so much more!

However, there are also some risks to be aware of:

• More exposure to scams and fake coins
• Higher risks on some cryptocurrencies as they tend to have more volatility
• Can be a lot more technical and challenging to navigate through

How Sushiswap works!

Now that you have an insight into what you can do on a Dex, let’s explain to you how Sushiswap works. On this exchange you’ll have the possibility to:

• Swap coins (exchange one coin for another, fees apply)
• Do Liquidity pools (deposit two different coins in a pool to generate passive incomes)
• Stake coins (lock your coins on a blockchain network to earn rewards)

Choose a network

First, you’ll need to choose which network you want to use it. Let’s say, we’ll use the Fantom (FTM) network. You’ll need to have a ready-to-go crypto wallet such as Metamask, WalletConnect, Coinbase Wallet, and others. You can see which wallet is compatible at the top right corner of your screen. Most of the time, that’s where you will be able to connect your wallet on a Dex. Since we chose the FTM network, you’ll need to have some available FTM funds in your wallet for your transaction fees (or gas fees). When trading in the DeFi space, you’ll want to start with what is the easiest, which is swapping coins and then you’ll want to expand your knowledge and maybe broaden your trading strategy. DYOR (Do Your Own Research, as we always say in the space!), and get to understand protocols and tools before hopping in! Sushiswap has an Academy section in which you can learn about their ecosystem and be guided through your trading journey.

There’s a multitude of coins available for you to invest in, make sure you do some research before investing in them.

Adding Links to Your Account

In order to simplify your trading, you can add Sushiswap’s website link to your Metamask. First, you’ll need to copy the site link (always make sure, that it is the right link!). Then go to your Metamask app, and click on the internet tab. Click on the + button to add a link, and paste your link here. Once the website appears, you’ll be able to link your wallet from the top right-hand corner as mentioned earlier.

Right before swapping coins, you can go on Coinmarketcap, search for the coin you’re interested in, and copy its smart contract address. You can find it on the right side of your screen on a desktop and at the very bottom of your screen on the app. Return to your Metamask app, on the main screen, you’ll see the following sentence ‘Don’t see your token? Import tokens’. Click on the ‘import tokens’ part and then you’ll have the possibility to paste the address. The other fields will be filled up automatically, you’ll only need to click on ‘import’. Once done, you’ll see the name of the token on your wallet.        

Swapping Coins

You’ll then have the possibility to swap coins once back on Sushiswap. The coin that is at the top is the coin you want to swap, which means that you will need to have sufficient funds in it. At the bottom it’s always the coin you want to acquire therefore, you don’t need to have funds for that one. Select the amount of FTM you want to swap, right under that amount, you’ll see the equivalent in dollars. Below is the amount that you’ll get in the other coin. Then click on ‘Swap’ and you’ll see how much you’ll have to pay for the transaction fees. Once happy to proceed, you can keep on going and confirm the swap.

Once done, go back to your main screen and that’s where your coin will appear! Congrats on your first swap on Sushiswap! This will lead us to other very important points to consider when trading in the DeFi space.

Gas fees, Slippage, Impermanent loss – Here’s what to do.  

Traders love trading in the DeFi space, there is more flexibility, more choice, more diversity in terms of investment, and of course bigger potential gains. However, there is also more volatility and more risks as everyone can create a platform, a token, or an NFT. And there is no way of knowing if the latter is trustworthy from the start apart from DYORing. This is why it is always best to investigate and do thorough research.

Here are a few things you want to keep in mind:

• Gas fees: As seen previously, these are the transaction fees, depending on the network you’ll use, the Dex you’ll choose when you’ll want to do your transaction but also depending on the popularity of the coin at that precise moment, it may raise or lower.
• Slippage: This is an additional fee that you might be asked to pay at higher peak times, when a coin fluctuates a lot, and the volatility is at its highest (this varies because of its trade volume and activity).
• Impermanent loss: This is when the value of a token placed in a liquidity pool loses value compared to when you initially placed it.

Optimize your Transactions

In order for you to optimize your trades, here are some advice:

• Try to avoid trading your coins during high volatility times. This is a mass effect, it usually happens when a group of people are $Bullish (really optimistic about a project or a token) and quickly want to hop in before missing out. It also happens when a group of people are $Bearish (fearful and doubtful) and quickly want to hop out before losing too much. Or when a whale (an investor that places a very large amount of money) places or withdraws their investment.

In these circumstances, a Dex will want to protect its liquidity and avoid bugs, so you may be asked to pay higher fees than normal. They may also freeze out or put on hold all transactions for a while. (They usually resume within minutes to hours depending on situations and platforms.)

However, in the crypto space, you need to act fast, and you should always be able to do last-minute transactions. In that case, always try to diversify your platforms and protocols. If slippage is too high or if you are prevented from doing your transactions try another Dex. Using another Dex is always a good alternative, as it can also be cheaper. So try to broaden your tools!