SmartSwap Review By DZN Part 1
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What is SmartSwap?
SmartSwap is a subsidiary organisation under the Atom Foundation. SmartSwap permits users to swap tokens, cross-chain, without wrapping assets or utilizing side chains. This process allows users to receive the exact dollar value of their asset on the previous chain by creating a zero slippage bridge. Instead of using a centralized exchange (“CEX”), users can make use of SmartSwap’s fully anonymous token bridge.
What problem does SmartSwap solve?
Price volatility and slippage
The traditional automated market maker (“AMM”) model usually causes the end user to lose money during swaps due to price volatility and slippage. As AMMs typically suffer from poor liquidity, large transactions could cause significant movements in price. As a result, most AMMs have a built-in “slippage tolerance” feature, allowing the users to determine the maximum price discrepancy they are willing to accept in order for their swap to be executed.
Alex wants to swap his 10 BNB for 2 BETH on PancakeSwap, but BETH suddenly rises by 5% right after he confirms his swap and before the transaction is mined by a node. After the swap is mined, Alex notices that he received only 1.9 BETH instead of the 2 BETH that was promised to him. Therefore, Alex’s slippage tolerance must have been greater than 5% to allow the swap to go through. Moreover, if the price of BETH becomes 5% cheaper before the transaction is mined on the blockchain, he still receives only 2 BETH instead of 2.10 BETH. This happens because the exchange keeps the positive slippage, withholding a more favorable price from the user.
Setting a low slippage tolerance on the other hand can lead to failed transactions if the price of a token is volatile and thus fluctuates. Due to this fluctuation, the transaction may fail and lead to wasted gas fees
Complex process to bridge over to other chains
With the ongoing DeFi hype and Ethereum’s inability to scale, the Ethereum network is becoming increasingly congested, causing gas prices to surge. With gas prices being in the $50 — $200 range at times, the use of dApps becomes unaffordable for smaller investors. Smaller investors have to be wary of the current gas price during certain portions of the day and they need to have greater returns on their investment due to the high initial gas fee. As a result of these inconveniences and high barriers to entry, some avoid DeFi entirely and stick to only using CEXs. Due to Ethereum’s rising gas costs, alternate chains and layer 2 solutions such as Binance Smart Chain, Solana, HECO and Polygon have garnered the attention of investors in the past months. With transaction costs being a fraction of the Ethereum gas fees, it is evident that DeFi has become more scalable and efficient with lower fees.
However, since these alternate chains and layer 2 solutions are not chain agnostic, there is a migration process to transfer funds from one chain to another.
For Example… Getting from the Ethereum Network to Binance Smart Chain Network can be a hassle. Every time a user wants to bridge over their funds, they are given two options:
Using a CEX
- Transfer funds to a CEX (Requires KYC)
- Buy BNB
- Transfer BNB to BSC Network (Binance.us does not support transfers to the BSC network)
Or you use a tool such as Binance Bridge. It works as intended by getting funds to the other chain, but this would be a confusing process for an inexperienced investor.
Following steps are involved:
- Go to an external website
- Connect your wallet (Specific countries including the U.S. are blocked from using the service)
- Then complete the swap and pay the Ethereum gas fees.
To get back onto the Ethereum Network, additional steps are required. Additionally, users are burdened with the cost of network fees, the duty of ensuring proper wallet and contract addresses are used, the limitation of token support, and the limitation of a minimum and maximum value of funds that is allowed to be sent.
Binance Bridge simply does not provide an accessible solution.
In regards to multichain DEXs, there are no platforms that offer true cross-chain swaps. Take for example ZERO exchange. Their method uses a bridge and wraps a token so that it can be transacted with, on different chains on their platform. The issue is that when they bridge over to the new chain and get the wrapped token, it is not the same token they owned on the previous chain. It may have the same price because of an oracle price feed, but from a contract standpoint it is cryptographically different. This also introduces a security issue, since there is a possibility of the oracle being hacked and a hacker stealing funds by changing the value of the wrapped coin. Also, because the coin has a different contract, some dApps will not recognize the coin and one will not be able to use it for staking, yield farming, lending etc. It also requires the user to pay the expensive Ethereum gas fees to switch between networks.
Not really a multichain DEX
- AMMs suffer from poor liquidity and as a result it is difficult to receive the same face value for the tokens you swap
- Bridging over to other chains is an expensive process and current multichain DEXs wrap the exchanged tokens, which is not an optimal method to conduct cross-chain swaps
The Solution? SmartSwap
Platform Overview & Features
SmartSwap’s value comes from their many features ultimately saving users money. Unlike other coins from different networks, SmartSwap aims to get rid of wrapping coins and instead are developing a fully functional, one-click cross-chain platform. Additionally, SmartSwap aims to save users’ money by eliminating the concept of slippage, giving users the full value of their swaps without losing any tokens in the process of swapping. This fully decentralized project has no need for KYC, liquidity pools, deposits, and hot wallets. Furthermore, SmartSwap is free to license so other projects can build their own SmartSwap at no cost. Most importantly, SmartSwap will reimburse all fees, including gas fees, with $SMART. This ultimately gives users the full value of their swaps in one click with no additional fees.
SmartSwap swap mechanisms: Zero Volatility Swaps
A unique feature available when exchanging tokens on SmartSwap is that the user can determine the USD amount that they want to transact. SmartSwap will use this value as the basis for the transaction and execute the swap, sending the necessary number of tokens for the specified USD value and receiving the same exact value in the exchanged token.
This feature enables the user to perform trades without setting up the slippage for the tokens used in the exchange, as the system creates zero slippage scenarios through this method. When using this service, the price changes made while the transaction is still processing does not affect the exchanged tokens.
SmartSwap, Behind the Scenes
Multiple Swapping Mechanisms to Process Swaps
The methods used have the following priority and happen autonomously after the user submits a transaction: P2P (Peer-to-Peer), P2G (Peer-to-Group), and P2C (Peer-to-Contract). This flow offers the user the lowest fees at the time of the transaction. SmartSwap also offers customization. Prior to making an exchange, a user can determine their needs — low fees, fast transactions, or high rewards.
Peer-to-Peer (P2P) Swapping Process
This method is the default for any transaction made on SmartSwap which involves the trade of tokens between two different users. This is the preferred process, considering each user will only have to pay the gas fees for sending the token, thus reducing the transaction costs. SmartSwap will receive a signal that the tokens can be exchanged between two parties and will link these transactions to go through from one to another.
Peer-to-Contract (P2C) Swapping Process
This is a method employed for users that require the transaction to finish faster, rather than executing the swap order with the liquidity pool when there is no counterparty readily available for the exchange. In this case, the user will have to pay the regular gas fees for both sending and receiving the tokens.
Peer-to-Group (P2P&C) Swapping Process
This is a mixed approach between the two aforementioned methods. In case the counterparties offer less than the amount the user selected to exchange, the system will create a partial exchange for that specific amount available and execute another exchange for the rest of the value with the liquidity pool.
SmartSwap offers cross-chain capabilities for the users to exchange their tokens between different blockchains (currently only the ETH-BNB bridge is developed) with only one click. This service will enable the person utilizing it to avoid using cryptocurrency exchanges as bridges, thus avoiding additional transaction fees and simplifying the process for users.
Reimbursement of Fees & Gas Costs
The users exchanging on SmartSwap will be fully reimbursed with the value spent on fees and gas cost in SMART tokens. This incentivizes the user to make more transactions, especially on blockchains with high fees such as on Ethereum.
SmartSwap works together with dApps on lowering the barriers between the blockchains and the “customer,” to be able to pay from any blockchain in any token while the “vendor” receives its preferred token on the correct blockchain. The system will automatically convert and bridge the supplied token through the cheapest route available, providing the user with a smooth experience.
CEXs and launchpads often require large upfront capital in order to be listed. SmartSwap, however, offers a free license for anyone who wishes to be listed on their platform. This incentive is driven from the project’s ambition to create mutual benefits for all people involved. The only requirement for projects that want to be listed on SmartSwap exchange is that if they want to charge any fee for transactions made with their token, the entire value of the fee must be reimbursed in their own native token. This allows for a low barrier of entry for projects and offers the possibility to start a project without capital raised through seed, private, or public sales.
Free licensing proposes potential, as every project generates its own traffic. SmartSwap’s ability to scale in this manner could result in SmartSwap becoming the most widely used exchange in the crypto space. People will also have access to the same liquidity using SmartSwap, no matter which door they are entering from.
The idea of a one-click slippage free DEX is something that does not yet exist and has potential to bring DeFi closer to the mainstream. Taking multiple steps to swap assets from one chain to another is no longer necessary. Do note that the SmartSwap website is currently only working on the testnet. The mainnet will be launched at the same time as the SMART token.
In part 2 of the SmartSwap review we will cover the team and advisors, roadmap, tokenomics and launch details.
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Note: The information in this article and the links provided are for general information only and should not be taken as a financial advice.