What Is Polkaswap?
Tech Deep Dives

What Is Polkaswap?

CoinMarketcap takes a deep dive into a cross-chain liquidity aggregator DEX protocol that has been designed for swapping tokens across different blockchains.

What Is Polkaswap?


Interoperability and cross-chain support are two of those keywords that have gained a huge demand in the cryptocurrency and blockchain industry. There is tremendous liquidity in all ecosystems, yet they cannot communicate or exchange value with one another. However, developers are building solutions to make all of that possible. The cross-chain exchange of digital assets is a necessary evolution that will allow the industry to gain more recognition.

As several platforms and projects tackle interoperability, the necessary infrastructure is being created. One of those projects is Polkaswap, a DEX for the interoperable future built on the SORA blockchain. 

What Is Polkaswap (PSWAP)?

Polkaswap (PSWAP) is a blockchain interoperability service provider and non-custodial liquidity aggregator cross-chain AMM DEX that was founded in July 2020. The project is hosted on the SORA blockchain. Its focus on interoperability will allow the rest of the cryptocurrency ecosystem to connect to the Polkadot blockchain. It is a recipient of the Web3 Foundation grants program.

PSWAP - The Polkaswap Token

Even though Polkaswap has a native PSWAP token, the team did not sell it through an Initial Exchange Offering (IEO) or Initial DEX offering. Instead, 3.5 billion PSWAP are issued as farming rewards for users who provide liquidity for specific Sora.farm pairs. In addition, further tokens were distributed through the build-up of reserves in the token bonding curve for SORA v2 and issued as rewards to market makers on Polkaswap.
It is safe to describe Polkaswap as a platform that wants to tap into cross-chain liquidity for automated market making and decentralized exchange purposes. It aims to bridge the gap between the broader crypto universe and Polkadot. The features that allows users to swap tokens at one platform will usher in the next era of decentralized value exchanging. Additionally, users can create, list, and trade their own tokens on the SORA network. 

The project is rolling out through different stages. In the first stage, Polkaswap will become part of Polkadot's ecosystem through the SORA network. That connection works via a bridge. In the second stage, Polkaswap will forge connections with other blockchains through additional bridges. 

SORAMITSU is one of the companies contributing to the open-source codebase of Polkaswap. The Japanese firm creates next-generation fintech solutions for businesses and develops open-source technologies, such as Sora, a decentralized ecosystem for the world.

How Does Polkaswap Work?

Through the creation of blockchain bridges, Polkaswap can close the gap between SORA and Polkadot. In the future, the developers will explore other bridges to connect to liquidity across different ecosystems. The choice for building on Polkadot is straightforward; it has better scaling and lower fees than Ethereum. 
Polkaswap's primary mission is to facilitate interoperability and serve as a decentralized AMM exchange to make token swaps as easy as they can be. The cross-chain exchange of assets needs to be straightforward. As a non-custodial solution, the protocol will initially support token swaps for Polkadot and Kusama relay chains, parachains, and other blockchains connected to this ecosystem through bridges. 

The Polkaswap team is convinced they can tap into unlimited liquidity. That will be possible by exploring and combining multiple liquidity sources through a unified aggregation algorithm that operates on-chain. When a swap function is called, the liquidity aggregation algorithm fills orders using the best offers across liquidity sources.

What Role Do PSWAP Tokens Play?

The PSWAP tokens serve as utility and governance assets. They are issued as a reward to liquidity providers on Polkaswap. However, the token has a deflationary curve, as it is burned with every transaction. Additionally, the team leverages a 0.3% fee for every swap on Polkaswap to buy back PSWAP tokens and burn them. 

What Makes Polkaswap Unique?

Traditional decentralized exchanges have a limit on how many token pairs they can provide to users. While anyone can add tokens and liquidity to such platforms, the options are limited to the ones that are available on that particular blockchain. For example, on Uniswap, one cannot access tokens available on Polkadot, Binance Smart Chain, etc. That is a bottleneck that many developers hope to overcome, including the Polkaswap team.

At its core, Polkaswap will let users swap tokens from the Polkadot ecosystem as well as other blockchains. Additionally, it lets users create, list, and trade tokens on the SORA network, creating a new source of potential liquidity. Furthermore, anyone can add liquidity sources by contributing to the Polkaswap codebase, which is completely open-source.

Being a recipient of the Web3 Foundation grants program shows external parties see merit in what Polkaswap brings to the table. That funding allows the team to work on the technology and removes the need to sell its native PSWAP token through an IEO or IDO. A fair distribution of this token to liquidity providers will create a level playing field for all current and future ecosystem participants.

How Does Polkaswap Compare With PolkaDEX?

Various projects look to bring out the maximum liquidity that resides within the Polkadot ecosystem. PolkaDEX and Polkaswap have a similar goal in this regard, although there are crucial differences between both ventures. Polkaswap is an AMM DEX, whereas PolkaDEX serves as an order book-based decentralized exchange relying on open markets and external institutions. Polkaswap is a decentralized liquidity platform where orders are not executed against an order book, but rather at the best possible price.

Furthermore, Polkaswap has a bridge to Ethereum that is production-ready, putting it ahead of PolkaDEX. However, the primary focus of Polkaswap is building bridges to other blockchains, and the connection to Ethereum is an advantage.

The Polkaswp roadmap includes features such as peer-to-peer fiat to crypto and fee-less transactions. PolkaDEX's features are compelling as well, although its focus shifts primarily to user interface, orderbook, IDO and swap pools rather than only relying on swap functionality.

Comparing a project that facilities cross-chain token swaps with a platform that mainly focuses on traditional trading solutions is challenging. However, both share a decentralized approach, and PolkaDEX offers swapping functionality up to a certain degree, while also focusing on bootstrapping projects with liquidity and getting them listed on an orderbook exchange. Polkaswap aims to explore broader horizons via a different path. 

August 4, 10:20 EST: This article was updated to include more information about PolkaDEX's offerings.

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