Recently, I've been paying attention to the ecosystem of decentralized trading platforms and noticed an interesting phenomenon—more and more people are using exchanges that don't require identity verification.

In simple terms, these are platforms where you can directly trade cryptocurrencies without submitting ID or address proof. Uniswap and PancakeSwap are typical examples. Uniswap was particularly large at the time, reaching 12 million monthly active users in August 2024, accounting for 60% of the market share. PancakeSwap, while smaller, still has nearly 2 million independent users.

Why are so many people using them? The main reasons are pretty straightforward. First is privacy—in an era of frequent data leaks, many people just want to trade discreetly without being monitored. Second is convenience—skipping complicated verification processes, trading instantly, opening multiple accounts freely, and transferring funds without restrictions. This is especially attractive for people in restrictive countries or those unable to access traditional financial systems. Another reason is speed—immediate account setup, unlimited accounts, and unrestricted transfers. Of course, some also use these platforms to evade regulatory restrictions, which is more sensitive.

But this freedom comes at a cost. Security is the top concern—anonymity attracts scammers, and if the code has issues or there's fraud, you have almost nowhere to complain because there's no central authority. Regulatory risks are also very real—governments worldwide are watching these platforms, and legal consequences are inevitable. Functional limitations are obvious too—for example, you can't withdraw fiat currency on Uniswap, and trading pairs with low liquidity are scarce.

I noticed an interesting data point—by November 2023, the total locked value (TVL) in the DeFi ecosystem had reached $50 billion, evolving from early yield farming to now include liquidity staking and lending.

Decentralization is like a double-edged sword. On one hand, it represents ideals of privacy, freedom, and autonomy. On the other hand, this lack of regulation makes these platforms hotbeds for money laundering and fraud. Without central institutions, no one can help you or handle complaints.

Think about the protections traditional banks offer: in the UK, the FSCS insures up to £85,000, and joint accounts can be protected up to £170,000. In the US, FDIC coverage is up to $250,000 per depositor. But what about crypto exchanges? Most are not covered by these insurance schemes. Even if some exchanges offer insurance, coverage is limited and far less comprehensive than traditional finance protections. If hacked, scammed, or involved in disputes, you might just be out of luck.

Historical cases illustrate this well. For example, Hydra, an underground darknet marketplace, used decentralized exchanges and Bitcoin mixers to launder millions of dollars in illegal funds. Because no identity verification was needed, criminals could easily convert illegal Bitcoin into legitimate cryptocurrencies, making it very difficult for law enforcement to trace. Another case is Tornado Cash— in 2022, North Korean hackers used it to wash over $600 million worth of Ethereum stolen from the Axie Infinity hack. The hackers' trick was to use mixers to break the link between sender and receiver, making the source of funds untraceable.

By the way, the FBI's Internet Crime Complaint Center received over 60k crypto-related fraud complaints in 2023, involving losses exceeding $5.6 billion, with rapid growth.

If you still choose to use these platforms, you need to be especially cautious. Here are some basic principles: use long, complex passwords, preferably managed with a password manager. Enable two-factor authentication for an extra layer of security. Use a VPN to hide your location and network connection. When trading on DEXs, keep your funds in non-custodial wallets, but for added safety, transfer excess funds to hardware wallets and only keep the necessary funds in linked wallets. Lastly, beware of phishing—carefully check URLs, verify smart contract addresses, and confirm the authenticity of emails and links.

Overall, decentralized trading platforms give us freedom, but they also come with risks. Weighing these two aspects carefully is what a rational trader should do.