Rsk Swap And Solving The Liquidity Problem On Decentralized Exchanges(DEX)

WHAT IS RSK?

RSK is an open-source Bitcoin sidechain platform that hosts smart contracts. It expands the existing functionalities of Bitcoin’s network by delivering greater scalability and the possibility to create, deploy, and import smart contracts on top of Bitcoin’s network.

WHAT IS RSK SWAP?

RskSwap, created by the developer ecosystem, is another contribution to the DEX market, which has seen exponential growth all along 2020. RskSwap is a class of decentralized exchange that allows users to swap various ERC-20 tokens instantly while charging them a fee of 0.3%. The protocol is intended to solve the liquidity problem of decentralized exchanges, and it comes with a few main benefits:

• It’s entirely decentralized, so no one has direct control.

• It is permissionless, meaning that anyone can use it.

• Anyone can verify the execution, making the protocol secure.

• In addition, it’s censorship-resistant, which is an important quality at present times.

• Additionally, much like Uniswap, there are no general restrictions for listing tokens.

Every single ERC20-based token has its very own smart contract and its liquidity pool, and if there’s none, it can be easily created. Once the token has its liquidity pool, anyone can contribute to it to earn the 0.3% fee that goes to the liquidity provider. RskSwap is a fork of the popular Uniswap V2 Protocol. Uniswap remains the most widely used decentralized exchange on the Ethereum network. When individuals stake their assets and become liquidity providers, they receive the fee reward in the native token of the pool they stake in. This has created some exciting opportunities for investors because speculation is known to drive the price of said tokens insanely high. Of course, this also brings the risks of impermanent loss when yield farming and needs to be considered very carefully.

WHAT IS UNISWAP V2 PROTOCOL?

Uniswap v1 is an on-chain system of smart contracts on the Ethereum blockchain, imple- menting an automated liquidity protocol based on a “constant product formula” [1]. Each Uniswap v1 pair stores pooled reserves of two assets, and provides liquidity for those two assets, maintaining the invariant that the product of the reserves cannot decrease. Traders pay a 30-basis-point fee on trades, which goes to liquidity providers. The contracts are non-upgradeable. Uniswap v2 is a new implementation based on the same formula, with several new highly- desirable features. Most significantly, it enables the creation of arbitrary ERC20/ERC20 pairs, rather than supporting only pairs between ERC20 and ETH. It also provides a hard- ened price oracle that accumulates the relative price of the two assets at the beginning of each block. This allows other contracts on Ethereum to estimate the time-weighted average price for the two assets over arbitrary intervals. Finally, it enables “flash swaps” where users can receive assets freely and use them elsewhere on the chain, only paying for (or returning) those assets at the end of the transaction. Specifically, RskSwap was built with liquidity in mind which is one of the main drawbacks of decentralized exchanges. In a system where tokens can earn high yields and simultaneously generate tokens to minimize the effects of impermanent loss, most will have every reason to participate or at least explore this option as an alternative to centralized exchanges. The more providers in the system, the deeper the liquidity and the higher the fees generated.

UNDERSTANDING THE RSK SWAP PLATFORM

Users will have the possibility to swap their tokens in a fast and easy way through an intuitive platform with a clear interface. It will be just as simple as specifying an input amount and the protocol will be calculating the number of funds they will receive back. The funds will be transferred immediately to their wallets by using the RskSwap decentralized application with a Metamask wallet installed. Take into consideration that the fees are going to be paid using the RBTC digital asset. Developers and blockchain firms can easily list their ERC-20 token on the RskSwap platform without even asking for permission (that’s why we claim this is permissionless). Each of these tokens will be connected to a liquidity pool and smart contract. Users will be able to trade that token and / or contribute to the liquidity pool, which will provide a fee of 0.3%. At the same time, every single time that a new pair of tokens are contributed to RskSwap liquidity pools, those that contributed to it will receive an ERC20 token related to this pool. These tokens can also be exchanged and used. Once the funds are reclaimed from the pool, the pool tokens will be burned.

UNDERSTANDING LIQUIDITY AND LIQUIDITY POOLS

A liquidity pool is a crowdsourced pool of cryptocurrencies or tokens locked in a smart contract that is used to facilitate trades between the assets on a decentralized exchange (DEX). Instead of traditional markets of buyers and sellers, many decentralized finance (DeFi) platforms use automated market makers (AMMs), which allow digital assets to be traded in an automatic and permissionless manner through the use of liquidity pools.

THE ROLE OF LIQUIDITY POOLS IN DeFi

Cryptocurrency liquidity pools play an essential role in the (DeFi) ecosystem — in particular when it comes to decentralized exchanges (DEX). Liquidity pools are a mechanism by which users can pool their assets in a DEX’s Smart contracts to provide asset liquidity for traders to swap between currencies. Liquidity pools provide much-needed liquidity, speed, and convenience to the DeFi ecosystem. Before Automated Market Makers (AMM) came into play, crypto market liquidity was a challenge for DEXs on Ethereum. At that time, DEXs were a new technology with a complicated interface and the number of buyers and sellers was small, so it was difficult to find enough people willing to trade on a regular basis. AMMs fix this problem of limited liquidity by creating liquidity pools and offering liquidity providers the incentive to supply these pools with assets, all without the need for third-party middlemen. The more assets in a pool and the more liquidity the pool has, the easier trading becomes on decentralized exchanges Liquidity pools aim to solve the problem of illiquid markets by incentivizing users themselves to provide crypto liquidity for a share of trading fees. Trading with liquidity pool protocols like Bancor or Uniswap requires no buyer and seller matching. This means users can simply exchange their tokens and assets using liquidity that is provided by users and transacted through smart contracts.

HOW DO LIQUIDITY POOLS WORK?

An operational cryptocurrency liquidity pool must be designed in a way that incentivizes cryptocurrency liquidity providers to stake their assets in a pool. That’s why most liquidity providers earning trading fees and crypto rewards from the exchanges upon which they pool tokens. When a user supplies a pool with liquidity, the provider is often rewarded with liquidity Provider (LP) tokens. LP tokens can be valuable assets in their own right, and can be used throughout the DeFi ecosystem in various capacities. Usually, a cryptocurrency liquidity provider receives LP tokens in proportion to the amount of liquidity they have supplied to the pool. When a pool facilitates a trade, a fractional fee is proportionally distributed amongst the LP token holders. For the liquidity provider to get back the liquidity they contributed (in addition to accrued fees from their portion), their LP tokens must be destroyed. Liquidity pools maintain fair market values for the tokens they hold thanks to AMM algorithms, which maintain the price of tokens relative to one another within any particular pool. Liquidity pools in different protocols may use algorithms that differ slightly. For example: Uniswap liquidity pools use a constant product formula to maintain price ratios, and many DEX platforms utilize a similar model. This algorithm helps ensure that a pool consistently provides crypto market liquidity by managing the cost and ratio of the corresponding tokens as the demanded quantity increases.

BENEFITS OF RSK SWAP TO LIQUIDITY PROVIDERS, TRADERS AND DEVELOPERS

RskSwap is a perfect platform for users (even whales or project foundations) with large hauls of tokens to earn passive income from their investments whenever their tokens are swapped for others. Meanwhile, professional liquidity providers focused on nothing else but market making can create custom tools to help them track their portfolio across different pools. On the other hand, developers can deploy even more complex DeFi tools such as liquidity pools acting as collateral or experimental strategies like incentivized liquidity. Created with developer empowerment in mind, they are free to integrate with RskSwap smart contracts to power new interactions with tokens, to enhance retail experiences, and much more since the underlying source code is open. This openness translates to better functionality as countless experiments are done to improve the user interface for intuitiveness. Placing developers at the center is also paramount for RskSwap’s success because wallet integration is integral in their operations. The more developers participate, the more functionality there is. To start using RskSwap, click the link below: https://rskswap.com