DeFi or decentralized finance is definitely giving a tough competition to CeFi or centralized finance. DEXs or decentralized exchanges are crucial elements of DeFi and AMM (automated market maker) based DEXs have really solved the liquidity problem of the traditional DEXs. The liquidity providers of AMM based DEXs earn a trading fee and the price is determined by the ratio of the tokens in a pool. The DEXs like Uniswap, Pancakeswap are generating billions of dollars in daily trade volume nowadays and they overtook many top centralized exchanges. People are liking DeFi due to its permissionless nature and absence of any intermediary. DeFi adoption is definitely growing at an exponential rate but we need more composable solutions. A big problem with blockchain technology is that the different blockchains don’t talk to each other. Cross-chain transfer solutions are not ready and it is creating a big barrier for mass adoption. Polkaswap, unveiled in July 2020, is an AMM based DEX for Polkadot and Kusama. It is just like Uniswap but focused on cross-chain swaps.
Works with multichain
The parachain framework of Polkadot enables many assets from different blockchains on Polkaswap. It is important to note that Polkaswap is built on Sora Network and it is one of the most important applications built on the network. The framework of Sora Network enables standardization of direct and secure interaction among Polkadot parachains. Polkadot and its wild cousin Kusama both are focused on cross-chain interactions and thus Polkaswap is technically able to list any token available on Polkadot and Kusama and perform the cross-chain swap. The cross-chain bridges are operational on the testnet.
Lower fees model & burning
Sora Network’s core infrastructure uses Parity Substrate of Polkadot and thus it provides high scalability. Sora Network has a low fee model and this will help Polkaswap to keep fees low. Their blog post says that: “Polkaswap will have 0.3% trading fees per transaction, like Uniswap. Trading fees are used to buy back and burn PSWAP tokens and new PSWAP tokens are minted to reward LPs. Rewards to liquidity providers start at 100% of burned trading fees and gradually goes down to a flatline at 35% of daily burned tokens after 5 years.”
Image Source - Polkswap working in an easy diagram
Aggregated liquidity technology
Polkaswap is also designed to pull liquidity from CEXs and other DEXs in the near future through its aggregated liquidity technology. Sounds interesting? The unique liquidity algorithm of Polkaswap will identify multiple sources of liquidity. The bridges will be maintained by Sora Network functionality. The project is open source and the developers are working with high dedication for a long time. Imagine your swap powered by Coinbase and Binance to optimize the price impact. The exchanges will also get tremendous benefit as their liquidity flow will be diversified. Aggregation service is aimed at providing the best price and integration of Polkaswap to an exchange can be very beneficial to the users of that exchange. The liquidity aggregation code is not public yet and it is supposed to be made public after the Sora V2 launch.
SORA NEO acts as an autonomous virtual state, governed by XOR holders via multi-body sortition and they launched the testnet of Polkaswap in December. Three months have already passed. The parachain virtual bridge connecting Polkadot to Ethereum is running and being tested and Polkaswap will operate on this bridge. The roadmap of Polksswap says that they would launch the V1 mainnet by Q1-Q2 of this year. Polkswap V2 is supposed to be launched in Q3-Q4 of this year with advanced features. There is no doubt that Polkaswap looks promising and the project is supported by Web3 Foundation Grants Program. The need for interoperable DeFi is widely visible and many projects are working on similar solutions on blockchain platforms like Polkadot and Avalanche. The smart contracts of existing DeFi platforms are obviously very efficient financial robots to provide seamless and optimized financial services but now the battleground for obtaining infinite composability is getting ready.
Note: This post was first published here for Cryptowriter in association with voice.com.