What Are Path Payments? - Stellar Network

What Are Path Payments? - Stellar Network

By Answerly app | Answerly | 27 Jan 2021


Introduction

Let’s start with the basics! 

What uptakes an offer on an SDEX order book? Order books, in case you are completely unfamiliar with the concept, are a list of offers (buying and selling both) for specific asset pairs. But coming back to the original question and its answer, it is a path that takes an offer existing on an SDEX order book. SDEX refers to Stellar decentralized exchange and is an exchange where selling order, buying orders, and matchmaking takes place. But we see you are getting a bit perplexed by all this information, which is why we will talk about the basic purpose of path payments presently.  

What does a path payment do?

Source: changenow.io

Sending one asset but expecting that receiver receives a completely different asset sounds like some bat crazy idea, right? Something that could not have been imagined until now! But well, path payments enable users to achieve this unbelievable feat. The conversion from one asset to another happens in transit, which makes the whole idea even more mind-blowing. The instantaneousness of a path payment makes it a favorable choice for anyone wishing to send & receive assets of different natures. 

Importance of path payments

Let us illustrate the importance of path payments with the help of an example. Suppose you have a friend in America, to whom you want to send some money for miscellaneous purposes. Normally, first, you would have to create a trustline for the USD, glance over market orders on SDEX for conversion (Euros to USD) and then find the best rate and submit the buy order. It is only after these steps, that you can send USD to your American friends from your European place of residence. Enter path payments. The aforementioned chain of events happens in a single operation, which makes life quite easy for the sender, who in this example, was you. 

Path payment options 

It is prudent to discuss two-path payment operations featured by stellar coreV12. These are strict send and strict receive. The former allows a user to specify the asset amount to be sent. It is important to note that the amount received by the receiver can vary, based on order book offers. Other than that, in this mode, a user can also specify a destination minimum. On the other hand, in the latter mode of path payment, one can specify the amount of destination asset, meaning one can make sure that the receiver receives exactly the amount needed on the other end of the transaction. 

Summary 

The biggest plus that one gets with path payments, but one that we have not highlighted enough in this discussion is that you will have to pay the fee only one time. The complex chain of events that we described earlier in this discussion happens in one step, which means the user has to pay a fee for one step only. Plus the fact that path payments can be used for trading as well as a cherry on the top!

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