While trading on big, centralized exchanges can be convenient, it’s not without its costs. Centralized exchanges provide tempting targets for hackers, charge high fees, often demand time-consuming and invasive KYC procedures and hold on to your assets for you.
Decentralized finance (DeFi) solutions like ICON’s Balanced stay much truer to the blockchain ideal by cutting out the middleman and giving users full possession over their own assets. While not without risks, Balanced’s decentralized approach gives you complete control over your financial destiny, including instant, 24/7 access to your trading account.
In this post, we’ll learn how to swap digital assets on Balance’s decentralized exchange. We’ll also explore why decentralized exchanges represent such an innovative approach to crypto trading.
Decentralized Exchanges: the Future of Trading?
Most cryptocurrency holders are familiar with cryptocurrency exchanges such as Binance, Coinbase and Kraken. In fact, we recently pointed to several major exchanges where you can purchase ICX.
These major exchanges are run in a centralized manner, like most conventional digital platforms like Google or Facebook. You can think of them as something akin to a stock exchange, acting as a middleman between traders. You need to create an account, and they’ll create a wallet where they’ll hold on to your money for you. In return for this, they’ll charge fees.
Granted, centralized exchanges are not without their advantages. They have a ton of liquidity, free users from the responsibility of being their own bankers, and their adherence — more or less — to national regulatory regimes could put some minds at ease.
However, these advantages come at a cost.
Aside from the fees mentioned above, siloing all that crypto in the hands of a centralized platform makes that platform a very enticing target for thieves, much as centralized platforms like Facebook present tempting targets for data hackers.
Moreover, in part to conform to regulatory regimes, you typically need to go through a long and sometimes difficult Know Your Customer (KYC) process. So not only are you turning over your assets to the exchange, you’re turning over your identity as well. And paying for the privilege.
Enter the decentralized exchange, or DEX.
Like centralized exchanges, decentralized exchanges allow users to trade assets. However, they go about this in a radically different way. Leveraging the power of smart contracts — pieces of code stored on the blockchain that automatically execute when certain conditions are met such as a user request to buy, sell or trade assets — decentralized exchanges cut out the middleman, allowing you to trade directly with other users in a faster, cheaper and more private way.
Just as importantly, they let you hang on to your own assets, in your own wallet, including offline hard wallets that are extremely safe. No need to trust the exchange to take good care of your money for you.
Moreover, you can trade anonymously without going through a lengthy KYC process.
Philosophically, too, decentralized exchanges adhere much closer to the blockchain ideal of decentralized control, where you own your own assets and data, nobody else.
Balanced: Financial Hub for the ICON Network
Launched last year, Balanced is a decentralized finance (DeFi) platform where you can trade crypto on its decentralized exchange. It also lets you take out collateralized loans in the platform’s native stablecoin, $bnUSD, which are pegged to the value of the U.S. dollar.
Additionally, you can earn $BALN — the platform’s governance token — by minting $bnUSD stablecoins or supplying liquidity. You can stake those BALN to vote in Balanced governance decisions and earn network fees. For more on governance tokens and Balanced’s upcoming “boosted” governance token $bALN, we direct you to this recent post.
Balanced boasts some of the deepest liquidity (i.e., the ease with which you can swap one token for another) on the ICON network. At the time of writing, it was providing nearly 5 million dollars (well, bnUSD) in loans backed by just over 8 million dollars in collateral, with nearly 15 million dollars in total value locked up in the platform.
While many DeFi platforms can be a bit intimidating, Balanced goes out of its way to be inviting, even to novice users. From the beautifully designed UI on down, approachability has been hard coded into the platform’s features. It’s simple to use, fairly intuitive and fast.
That said, like with all DeFi solutions, you’ll need to exercise some degree of caution, at least while you’re getting the hang of things, because there are no safety wheels here.
Let’s Start Trading
Go to Balanced’s website and click on “Go to app” in the menu at the top.
Next, you’ll need to sign in by connecting your wallet. You can use either ICON’s Hana wallet, ICONex or Ledger, as well as the MyIconWallet mobile app.
The beauty of the DEX approach is already obvious. To use the major Korean cryptocurrency exchange Bithumb, I had to create an account and go through a long, complicated KYC procedure — in two languages — that involved, among other things, phone number verification, proof of a Korean bank account and a photo ID. Not only was the process laborious, but it left me feeling that Bithumb now knows me better than my own dad does.
None of that here.
Once I connect my wallet, I’m in. It’s that simple. And no KYC hassle. I’m just some nameless guy with a wallet and some crypto.
The app’s home page focuses on the collateralized loan function. While this is one of Balance’d coolest features, we’ll return to that in an upcoming post.
Select “Trade” from the main menu.
The “Swap” section is where you can trade crypto. Technically what we are doing is not “trading,” but swapping — swapping is “trading two different tokens belonging to two different Blockchain protocols” without having to convert fiat to currency or migrate tokens to a different blockchain.
Being ICON’s DEX, Balanced offers swapping for many of the ICON ecosystem’s tokens, as well as several stablecoins pegged to the US dollar. Tradable coins include:
- ICX: Native cryptocurrency of the ICON network
- BALN: Governance token of Balanced
- bnUSD: Balanced’s stablecoin, pegged to the USD
- CFT: Governance token of Craft, ICON’s biggest NFT market
- CROWN: Governance token of Emerald City in the GangstaVerse
- FIN: Governance token of the Optimus DeFi platform
- FRAMD: Token of “art-fi” NFT ecosystem FRAMD
- GBET: Token of the GangstaBet NFT collection
- IUSDC: OrbitBridge-wrapped version of the popular USDC stablecoin
- IUSDT: OrbitBridge-wrapped version of Tether’s USDT stablecoin
- METX: Token of staking service platform Metanyx
- OMM: Governance token of the OMM DeFi platform
- sICX: ICX “staked” on the Balanced network, which earn staking rewards
- USDS: Stably stablecoin
We have $ICX in our wallet, which we’ll swap for some $bnUSD, the USD-pegged stablecoin of the Balanced network.
- Enter the amount of ICX you’d like to swap. In this case, we’ll trade 20 ICX.
- In the “For” section, select “bnUSD.” The platform will automatically calculate how much bnUSD you’ll receive. In this case, 20 ICX gets us 5.46 bnUSD before fees and other costs are subtracted.
- Below that you’ll find “Price Impact” and “Minimum to receive.” Be sure to check both numbers.
- “Price impact” is how your order will impact the price of the asset you’re ordering. If you’re making big orders in a trading pair with low liquidity, your order will have a big impact on prices by making a “big ripple in a small pond.” If you’re making a small trade in a pair with a ton of liquidity, the impact will be negligible.
- The “minimum to receive” is the minimum you’ll get after several factors have been taken into account.
- The exchange rate. In this case, 1 bnUSD is worth 3.661 ICX.
- The route. If there’s no liquidity pool for the assets you want to swap, Balanced will route the trade through several other pools to get the best price, charging a 0.3% fee for each stop in the route. In our case, the route goes from ICX to sICX to bnUSD.
- The fee. Our 20 ICX trade will cost just 0.00600 ICX (a bit under 0.0015 USD) in fees.
- Slippage tolerance. Digital assets can be quite volatile. Between the time you confirm your order and the order is actually executed, the value of the assets in question may have changed. Slippage tolerance is how much you’re willing to let the total swap value change between order and execution. By default, Balanced sets it at 1%, widely considered a safe number. If the price changes by over 1% before the trade is done, it will be canceled. Feel free to adjust the number, though.
- Now we’re ready to swap. Click the “swap” button and you’ll be asked to confirm the trade. Confirm, and your wallet will ask for authorization. Authorize your wallet to make the trade, and the trade will go through. It usually takes just a second or two.
Check your wallet. In our case, we now have 5.462 bnUSD. And we can’t stress this enough — those bnUSD are in our possession (or “custody,” to use the industry term). You control them, not the exchange or any other third party. This is one of the things that makes decentralized solutions like Balanced so potentially revolutionary.