DRK SWAP — All you need in DeFi (Part 1)
DRK Swap has been successfully put into operation on DRK Chain and implemented in Draken.exchange. Despite being recently launched with the initial purpose to provide the community with basic using experience, DRK Swap has consecutively exceeded our expectation with impressive milestones reached: highest recorded total liquidity level of more than 5 million Dollar, highest daily trading volume of nearly 3 million Dollar. This is a confident premise for the development of DRK Swap in the coming time, which will be supported by our constant strategic movements that we have deliberately planned out.
In this article, we will get to know the basic definitions and information about DRK Swap — the strategic DRK DeFi product. The community can base their investment decision and method on the given input with careful and rational consideration.
In every blockchain ecosystem, especially those established for the cryptocurrency field, the Cryptocurrency Exchange is always essential and contains the majority of users of that ecosystem. In the current DeFi movement, Decentralized Exchange (DEX) is the common goal of most blockchain developers. Draken DEX has been introduced in that spirit, and has successfully solved most existing issues regarding efficiency and users’ experience in the past time with pioneering manners.
However, it is necessary to admit the existing weaknesses of DRK Chain, which have been huge factors hindering our development: market trend initiation, unmatching liquidity level and total trading volume. Therefore, riding the nourishing global DeFi movement with well-known examples of Uniswap, SushiSwap and Pancake Swap the development team has been inspired to introduce DRK Swap — an upgraded Token Swap application.
Benefiting from DRK Swap and Crosschain protocol, traders can exchange coin/token without having to trust anyone with their funds. Meanwhile, anyone can lend their crypto to special reserves called liquidity pools. In exchange for providing money to these pools, they earn fees.
WHAT IS DRK SWAP?
DRK Swap is a decentralized exchange protocol built on DRK Chain with the ability to automatically create liquidity without order books or centralized entities to execute transactions. DRK Swap allows users to exchange funds without the need for the third party, thus ensuring high decentralization and data transparency.
Inheriting all the strengths of DRK Chain, DRK Swap is advantageous with extremely high transaction efficiency (2-second block time with up to 5000 TPS) and near-zero gas fee. Also, benefiting from the Crosschain technology that the development team has proved success with Draken DEX, the implemented DRK Swap is sure to provide a smooth and pleasant experience when executing transactions between different blockchains without interference from another party.
To simply put it, DRK Swap focuses on optimizing liquidity level for users by creating liquidity pools that contain coin/token contributed by Liquidity Providers. The decentralized pricing mechanism, based on the ratio of funds between pools, helps eliminate the order book mechanism in basic trading.
HOW DOES DRK SWAP WORK?
DRK Swap allows users to make transactions without order books. The operating mechanism is formerly named Automated Market Maker (AMM). AMM are smart contracts containing information about the liquidity level of a trading pair of any coin/token. Anyone can become a Liquidity Provider by contributing coin/token to the reserves. Traders will form transactions with their coin/token, which will affect the total amount in the reserves. Traders will be charged 0.3% of the transaction amount for every transaction, the fee will then be distributed to Liquidity Providers based on the existing calculated ratio.
For example, we will get into detail of the existing liquidity pool DRD-DRK in DRK Swap.We’ll call the DRD portion of the pool “x” and the DRK portion “y”. DRK Swap will take the product of DRK and DRD amounts as the total liquidity of the liquidity pool, namely “k”. The core of this mechanism is to maintain a constant “X”, in order to ensure the pool’s total liquidity level. The formula for total liquidity level can be understood as follow:
For instance, you use 20 DRK to buy 1 DRD in DRD-DRK liquidity pool. That leads to the increase of DRK portion and decrease of DRD portion in the pool. This effectively means that the price of DRD goes up. The reason being DRD is decreased after the transaction, while total liquidity level “k” remains unaffected.
This mechanism effectively sets the price, depending on how much a given trade shifts the ratio between “x” and “y”. It can also be understood from the mechanism that, the larger the order is, the more it shifts the balance between “x” and “y”, which means small orders will less shift the ratio between “x” and “y”, and increasing total liquidity level for the pool will help ensure the ratio.
In Part 2, we will introduce a user guide for DRK Swap, methods to make profits and DSwap Token’s issuance plan. Stay updated on DRK’s official news channels to not miss any useful information!