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2 Stan. J. Blockchain L. & Pol'y 58 (2019)
Deconstructing Decentralized Exchanges

handle is hein.journals/sjblp2 and id is 58 raw text is: DECONSTRUCTING DECENTRALIZED EXCHANGES Lindsay X. Lin* INTRODUCTION Decentralized exchanges are becoming a critical tool for purchasing and selling an increasing percentage of cryptocurrencies. The term decentralized exchange generally refers to distributed ledger protocols and applications that enable users to transact cryptocurrencies without the need to trust a centralized entity to be an intermediary for the trade or a custodian for their cryptocurrencies. Decentralized exchanges provide a number of important benefits, including (1) lower counterparty risk (i.e., no need to trust a centralized exchange to secure and manage private keys),' (2) the potential for lower transaction fees, and (3) a more diverse array of trading pairs that can unlock access to riskier or less liquid cryptocurrencies.2 As demand for these features increases, decentralized exchange technology may witness tremendous growth in usage, development, and adoption within the next couple of years. Additionally, decentralized exchange usage is being fueled by concurrent regulatory and industry trends, including (1) a surge in the quantity of distinct cryptocurrencies that makes comprehensive listing impractical,' (2) regulatory risks of listing cryptocurrencies on centralized * Lindsay Lin is Legal Counsel at Interstellar and Stellar Development Foundation. This writing is not legal advice and is unaffiliated with Interstellar and Stellar Development Foundation. 1 Centralized exchanges have a history of significant security breaches, with many incidents resulting in tens or hundreds of millions of USD value of cryptocurrency stolen. See Julia Magas, Crypto Exchange Hacks in Review: Proactive Steps and Expert Advice, COINTELEGRAPH (Aug. 31, 2018), https://cointelegraph.com/news/crypto-exchange-hacks-in- review-proactive-steps-and-expert-advice. 2 To learn more about the various benefits of decentralized exchanges, see Fred Ehrsam, Why Decentralized Exchange Protocols Matter, MEDIUM (Sept. 27, 2017), https://medium.com/@FEhrsam/why-decentralized-exchange-protocols-matter- 58fb5e08b320. 3 CoinMarketCap.com, a website that lists almost all centralized and decentralized exchange traded cryptocurrencies, displays over 1926 cryptocurrencies. Comparatively, Bittrex, the U.S. exchange with the greatest quantity of listed cryptocurrencies, lists only 207 unique 58

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