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Can the Lightning Network play the role of DEXs?




World-leading exchange, Binance, has just given a sneak-peak at their upcoming decentralized exchange (DEXs).  While the company stresses that the demo is not a finished project, it is promising to know that the largest centralized exchanges in the world are working to evolve.

To promote the Binance demo, company CEO, Changpeng Zhao, took to twitter with a 6 minute video  stating, “A first (rough, pre-alpha) demo of the Binance Decentralized Exchange (DEX), showing issuing, listing and trading of tokens.  All cli based, no GUI yet.  A small step for #BinanceChain, a big step for #binance.”

The idea behind a DEX is simple: Find a way to eliminate the middle man in transactions.  The fewer people involved, the lower the fees, the less chance of hacking, and the more efficient the transaction.

Although the idea is simple, execution is anything but.  DEX’s have been around for a few years, and are only now getting to the point where market adoption is taking place.  Even so, only the tech-savvy are usually brave enough to use them.  With companies such as Binance and Coinbase involved, surely in the future, platforms presenting with user-friendly interfaces will be common place.

The list of centralized exchanges dipping their toes in decentralized waters is growing.  One is Coinbase -the venerated Seattle based exchange recently acquired their very own DEX named Paradex.  In addition, we have seen recent announcements from other market leaders such as OKEx and Huobi, stating their intentions to develop a DEX.  How long it takes these exchanges to develop a sound, useable platform is anyones guess.  It is obvious, though, that the competition is heating up.

Do we really need DEXs?

Although the industry is set on creating these next gen platforms, is it really the solution that the industry needs?

As Charlie Lee recently stated, “Lightning Network will be the ultimate decentralized exchange.  Users that are running LN on both BTC and LTC can advertise an exchange price and act as a maker earning a spread.  Other users can act as a taker and atomically swap LTC/BTC with the maker node via lightning.”

Although it isn’t known as a DEX, the Lightning Network presents with the eventual ability to act as one.  Achieved through the use of atomic swaps, much like a DEX, the middle man can be eliminated along with fees and inefficiencies.

With development and adoption of the Lightning Network taking flight, it might just give the public a taste of what DEX’s have to offer.  If executed well the Lightning Network has the capability to remove the NEED for them altogether.

This progress being made has garnered the attention of a plethora of altcoins.  What is good for BTC is good for them.  If an altcoin is able to implement the lightning network they then gain access to atomic swaps.  In doing so, they make themselves open for business, and appealing to those holding any of the other coins which support LN.  We have already seen announced intentions to integrate the Lightning Network from industry leaders such as Ripple, Stellar, DECRED, Litecoin, Monero, Zcash, etc.

Although not intended, the LN and DEX’s might just become competing technologies.  Do you believe the LN can supplant some, if not all, of the need for DEX’s?