TrustSwap is the Ethereum based SmartLock, SmartSwap, SwapDrop blockchain-powered escrow service developed by Uptrennd founder Jeff Kirdeikis. In this post, I will try to explain what problems TrustSwap solves, how it works, some of the advantages that it offers, and my overall thoughts about the service.
Counterparty Risk and Pokemon
Before I begin explaining what an escrow service is or how TrustSwap functions, I want to break things down to a very simple level and forget all the complexities of blockchain or cryptocurrency by using a real-world example.
Think back to when you were in third-grade trading Pokemon cards at school. You and your best friend wanted to trade a Charizard for a Blastoise, but who gives the other person the card first? If you give your friend the card first, he could run off with your card and not hold up his part of the trade. On the flip side, if he gives you his card first, then you could be the one that runs off with both cards. How do you solve this problem? You could take a risk and go first, or you could have a trusted third party to oversee the transaction.
In order to minimize the risk of peer-to-peer swaps, people have instituted escrow services in which a trusted middleman (the trusted mutual friend from our Pokemon swap) functions as an intermediary to ensure that neither party is defrauded in the transaction. Although escrow services are a solution to counterparty risk, they can be very expensive ranging from 5% to 10% of the total value of the transaction.
What TrustSwap Offers
Essentially, TrustSWap is an Ethereum and blockchain-powered escrow service that helps reduce risk in
- ICOs (Initial Coin Offerings)
- P2P crypto swaps
- Recurring Payments / Payroll
- One Time / Future Payments
TrustSwap accomplishes its mission with two separate features: SmartLocks and SmartSwaps. SmartSwaps are simply a way for two individuals to enter a peer-to-peer transaction, deposit their funds to the smart contract, and have automatic execution without having to worry about a third party risk. As part of a SmartSwap, two individuals could trade ETH for Dai without having to go through a decentralized or centralized exchange. The advantage of this is that two people can essentially agree to and customize the terms of their trade instead of taking the “market price” offered by an exchange.
Although the SmartSwap ability is a valuable feature, I personally find the SmartLock feature much more interesting and useful. The SmartLock capability allows for the automatic distribution of payments on a specific time interval.
This service allows an individual to easily set up a customizable smart contract that will automatically pay for something on a specified time frame. For example, if I have $1,000 worth of the USDC stablecoin and I want to give my sister $100 for her birthday for the next 10 years, I can easily set that up using TrustSwap without any advanced coding knowledge.
NOTE: Some of you may see the similarities between Sablier, which I covered in a previous article, and SmartLocks. The difference is that Sablier takes the total amount you want to distribute and distributes in real time whereas SmartLocks distribute periodic payments at periodic intervals. Think of it as the difference between a discrete and continuous payment function.
The possibilities with this service really are limitless. It could be used to slowly distribute tokens from an initial coin offering thereby ensuring that companies don't pump and dump a token. It could be used for automating payroll and paying employees automatically on a certain day each month, or it could even be used to make a recurring cell phone or mortgage payments. As I said, the possibilities are endless, and the best part is that there is absolutely no advanced technical experience required - Everything is done using a simple graphical user interface.
In addition to the TrustSwap and TrustLock services offered by the platform, TrustSwap has also created its own native cryptocurrency called SWAP. Holding this token offers a number of benefits. The fees for TrustLock services on TrustSwap are already considerably lower than traditional escrow services, but when you pay the fee using SWAP tokens, that fee is further reduced by half.
To continue with the previous example, let's suppose that I want to send .01 ETH to an address every week for the next week. ETH is currently at about $1,233 so the fee would be about $1.23. SWAP is currently listed at $.75, so in this specific instance, using SWAP would offer about a 50% discount and cost around $.63. From this, we can learn two things. First, holding and using SWAP offers a nice discount. Second, even if we don’t want to use SWAP and pay only in ETH, the fee is only about 1% of the total value of the transaction which is quite a bargain compared to traditional escrow services.
Not only does holding SWAP help users save fees when they use the platform's services, but it also can be a lucrative investment in its own right. SWAP is a deflationary token with a strong tokenomics model in which 80% of the SWAP fees from each transaction are distributed back to SWAP stakers. Ten percent of the fees are burned, and 10% go to the governance foundation which is governed by SWAP holders themselves.
The combination of distributing fees to the stakers in addition to burning tokens gives two potential sources of profit. First, users can expect an increase in the actual amount of SWAP that they hold as those rewards are distributed. Second, they can hope for the price to increase as the token deflation puts upward pressure on the price of SWAP.
SwapDrops - Bonus Income
From time to time people who have staked SWAP tokens may be eligible for “SwapDrops” in which various cryptocurrency projects airdrop their tokens to SWAP holders. The amount and value of each SwapDrop airdrop depends on a variety of factors, but in general, the more swap you hold, and the longer that you have held it, the more you will receive from the SwapDrop.
In summary, TrustSwap is a new way of solving an old problem. The use of SmartLocks and SmartContracts can be useful in preventing ICO pump-and-dumps, facilitating automating payments, conducting P2P swaps, and so much more. In addition, the actual tokenomics of the SWAP token appear solid and holding the token appears to offer many benefits including discounted fees, staking rewards, and access to future airdrops.
As always, this is by no means financial advice and should be solely viewed as an informative article about a service that I find interesting.
Thanks for reading!