AMA Highlights: Polkaswap
By Daniel Dal Bello, Director.
July 12, 2021– 9 min read.
Building on the shortcomings seen in CEXs, Polkaswap is a DEX built with interoperability, liquidity, and security in mind since day one.
The platform includes an aggregator for both DEX and CEX markets which, combined with cross-chain bridges, makes for a compelling new user experience.
Polkaswap has previously received a Web3 Foundation grant in the 6th wave of ecosystem grants and has soft-launched late April.
We were curious to learn more about how Polkaswap is gearing up towards its full launch later this year.
In this post, we have compiled key questions and answers from the event.
Daniel Dal Bello
Could you start with some background on yourself, Polkaswap, and the relationship with Soramitsu?
I am Makoto Takemiya, the co-founder and CEO of Soramitsu.
I am a computer scientist by training and have been in the blockchain space since 2013. I really find blockchain technology fascinating and I’m here for the tech.
Soramitsu is a company I helped to found that focuses mainly on enterprise-related blockchain applications. We work with the central bank of Cambodia, among other clients, and we created the Hyperledger Iroha blockchain.
In the crypto-space, we work on the Sora decentralized economic system and related apps like Polkaswap that are on the Sora network.
Daniel Dal Bello
Could you introduce us to the relationship between Soramitsu and Polkaswap?
Polkaswap.io is a decentralized exchange (DEX) built on the Sora network. Soramitsu is one of the open-source contributors to the Sora network, as well as Polkaswap.
As a decentralized project there’s no ‘leader’, but everyone is free to participate and contribute to Sora and Polkaswap!
To our understanding, Polkaswap has no clear promised features and roadmap communicated for the long term because it’s DAO governed and any person or company can apply for development funding. Just like any other participant Soramitsu applies to the DAO and needs votes for funding proposals.
How has this decentralized development process worked out so far for you personally, being the CEO of Soramitsu?
I do think the planning does need a bit more coordination, and that is why we are working to set up a DAO structure for governance called the Sora Parliament. The Parliament will work on maintaining a roadmap for the SORA and Polkaswap projects, as well as offering funding to companies to develop and build the desired software.
Polkaswap has a very active community of developers in the ecosystem who build bots and run nodes. There are also a few projects building on the Sora network and their code should be released in the future.
Most of the time, new features that are implemented are done because of requests from the community in our very active Telegram chats.
So far there has not been much friction. I think most people are using Sora/Polkaswap because they believe in the vision of creating a decentralized, yet rational, economic system.
I can imagine that in the future there will be friction, but that is where the Sora Parliament should have processes for providing a clear direction and way forward.
How will the Sora Parliament be instated exactly?
The Sora Parliament will probably be initialized in stages. Currently, on-chain governance allows for XOR holders to vote on proposals, using the same democratic system as in Kusama and Polkadot.
The next phase will be to create a class of citizens, who are users that bond 150 XOR. From the group of citizens, there will be a random selection process to choose users to make decisions.
In the farther future, I also envision a professional group of users who work full time for the Parliament. However, I want to be clear that decision-making should always involve sortition (randomness) so as to prevent centralized control.
I was wondering about the 150 XOR you need to get a citizen. For me, it sounds like that only very wealthy people can be part of Parliament. How could this number be explained?
Unfortunately, it is needed to prevent Sybil attacks because the Parliament is pseudo-anonymous.
Can you explain the strategic bonus vesting? Does it apply to everyone that has more than 1 XOR in an LP? If so, when are we able to see the rewards from it?
35% of the PSWAP token supply is dedicated to LPs with at least 1 XOR in their pools, with 2.5 million PSWAP allocated daily. To prevent these PSWAP from just being dumped on the market, these rewards are vested by the burned amount of PSWAP. In this way, the circulating supply of PSWAP stays about constant, even while giving out large rewards to users.
So the rewards on fees we are seeing right now are the rewards from this strategic bonus vesting?
Not all rewards are currently released in production yet, but right now only about 1% of the daily burned amount of PSWAP is used to vest PSWAP strategic rewards. This amount will increase over time up to 55% of the daily burn or so.
At launch the re-minted PSWAP to be distributed amongst liquidity providers are 100% of the burned amount (for fees), but over the course of five years, the re-minted percentage will be sized down to 35%.
What strategic considerations lead to this approach and do you expect this will have an impact on the liquidity provision incentivization and value, apart from the incentivization program for which 3.5 billion PSWAP have been made available over the course of 4 years?
The reason to burn and then re-mint is to give flexibility in the future to the tokenomics. In this way, we are not limited by any burned amounts, as new tokens can be minted. While I don’t imagine that we will change the tokenomics any time soon, this flexibility in design was an important consideration.
How can you still guarantee the deflationary element in that case?
The big advantage of the Polkadot/Kusama way of doing things is that the network can always be updated through democratic processes and this can be used to upgrade economics as well. This is truly revolutionary and the incorporation of a democratic process for network upgrades makes sure that the socially optimal decisions are made.
What is your view on the progress of Polkadot, parachains, and the upcoming auctions?
Since you’ve been working in the ecosystem for over a year we’re very curious to hear if Polkadot has been what you expected it to be so far.
The Kusama/Polkadot ecosystem is still really nascent and because of that things are moving fast and changing quickly. This also means there are some rough edges and required infrastructure that still have to be built.
This is one of the reasons, by the way, that we work on FearlessWallet.io, as we saw a large need for better user interaction with the ecosystem.
As we’ve seen Soramitsu develops a lot of things, amongst which are Polkaswap and the Fearless Wallet.
Can you tell us more about how you divide your bandwidth and decide on priorities between the several projects under the Soramitsu umbrella?
We have several teams that work in parallel. The distribution of resources is based on the needs that we see the market has at any given point in time and we follow agile processes.
How big is your team and how does the entire team coordinate?
We are around 100 people and are truly international and distributed. We follow agile processes with daily meetings to make sure developers are on track and know what to do. I personally attend about 3 hours of developer meetings a day.
We work with many other entities in the Kusama/Polkadot ecosystem. We have had several grants from the Web3 Foundation and we also have been working with many teams to integrate their crowd loans into Fearless Wallet.
Daniel Dal Bello
The Hashi bridge between Ethereum and the Sora network does not support all ERC-20 tokens, what is the process of integrating new ERC-20 tokens and how are users guaranteed safely supported bridges?
Will the process change over time to make future integrations more fluent and swift?
Actually, anyone can add new tokens by calling RPC functions on the Sora network and a contract function on Ethereum, but this process is very hard.
We want to make it easier to add new tokens in the future by providing simple tools so users who are not developers can add new tokens to the bridge.
Some ERC-20 tokens are not fully ERC-20 compliant, so these likely cannot be handled by the bridge very easily. Rebasing tokens are hard to support as well.
What do you think Polkaswap in the short term by the end of this year needs to do to have better growth?
I think strategic targeting of token communities on Ethereum to get them to migrate close to 100% of their supply from Ethereum to the Sora network is a winning strategy.
Additional bridges should also help, but these take a long time to develop and test. It will just be a while before reaching a critical mass of token support, so for now it seems that focusing on the core token communities that are using the Sora network makes sense.
Polkaswap offers swaps across Ethereum, Polkadot, and Kusama networks, and a Bitcoin bridge is under development as early April this year news was released about the development of tBitcoin — a synthetic Bitcoin asset with an EVM bridge to SORA network built in collaboration by Sora, Soramitsu, Standard Hashrate Group, and Tau protocol.
How has development on this progressed over the last three months since its announcement?
Currently, only the Ethereum bridge is available. A Kusama bridge is getting closer to the testnet. The rebasing EVM bridge for Tau Protocol is going to take quite a lot of serious effort and research, so this will be a while.
Is the team spread in activity between them or are you tackling them chronologically one at a time?
Currently, a Kusama bridge is the top priority, as it is part of our parachain auction strategy. Sora won’t do a crowd loan, but will instead get KSM and DOT via bridges first, then will apply for parachains.
What is the timeline for getting KSM and DOT via bridges?
Aiming for testnet release this summer!
Looking longer-term, what is the strategic importance of synthesizing Proof-of-Work assets on the SORA network and implementing a Bitcoin bridge to Polkaswap?
Like it or not, Bitcoin will be popular for a little while more. However, transacting on the Bitcoin blockchain is a horrible user experience, so there is a great chance to get Bitcoin users to move to the Sora network if we can build a bridge to move BTC to Sora directly.
Apart from the conventional swapping method using XYK (Polkaswap pools), Polkaswap also offers the novel option of using TBC, meaning that the trade will be executed in the Sora token bonding curve.
This is documented to be able to facilitate large trades with reduced slippage, what brought forth the inspiration/necessity to develop TBC and what other benefits does TBC have over XYK?
Polkaswap allows trading to the token bonding-curve for XOR-VAL, XOR-PSWAP, XOR-ETH, and XOR-DAI pairs. This just means that a smart contract will manage the trades and can inject new XOR into the result, or burn XOR and tap reserves for providing more liquidity if needed.
This will allow XOR to be more useful as a token for liquidity provision and for transacting, as it will be more predictable than other crypto-tokens.
Since prices between the two options can differ, a third ‘SMART’ option is available that automatically selects the option with the best price (not considering PSWAP).
How has usage of these different options been? Are users mostly picking the ‘SMART’ option, are you seeing a lot of interest and usage of the novel TBC option? Or has the main adoption remained with the traditional pool set-up (XYK)?
SMART is the default option, so most users use this. SMART will always give the best price, as it combines all available liquidity sources for a pair.
In terms of price, does the TBC option often outperform or is it really 50/50?
TBC option is usually the most expensive price in the ecosystem and the TBC makes the most sense when the XYK price is too high and users can get a better deal via the TBC because the TBC can mint new XOR.
With that said, however, there are also PSWAP bonuses for buying from the TBC, so depending on the price, it can make sense to buy from the TBC.
Daniel Dal Bello
What are you looking forward to most in the next 6 months?
So many things, but I will just choose one: XST (XOR Synthetics).
Hillrise Group supports ambitious Web3 startups with early-stage venture capital and fundamental research.
Polkaswap removes trusted intermediaries and provides the opportunity for faster trading — cross-chain exchange of assets, simple creation and listing of assets, and easier swaps.