I've been doing a deep dive on Thorchain's newest feature: Streaming Swaps. This feature is a nail in the coffin for Centralized Exchanges. If I were to tell you that you could swap millions of dollars in a pool that has that or even less liquidity in it AND you could do it with LOWER fees than a centralized exchange with 100x as much liquidity, is that something you might be interested in?
I think almost all of us would be interested in that. Perhaps only a few who don't want to learn about DEX technology wouldn't want to dip their toes in it.
Nearly everyone wants things that are cheaper, easier to use and support decentralization / the emergence of exchanges that have no resemblance to FTX.
Thorchain has been that dream for a long time. A multi-token bridge. A decentralized exchange. The ability to permissionlessly swap crypto assets no matter what blockchain they are on.
The problem has been a lack of liquidity. That problem is largely solved by Streaming Swaps.
The Problem Thorchain Faces
The problem that Thorchain has faced in the past and currently faces is low liquidity. Thorchain doesn't have hundreds of millions of dollars in each liquidity pool. That means that if you want to swap BTC and ETH, there is quite a bit of slippage when doing large amounts.
On a CEX, you can buy or sell $1M worth of BTC / ETH in a short period of time with basically no slippage outside of some trading fees.
On DEXes, this has been pretty much impossible. The only DEX to gain signifcant volume on large trades with low slippage has been Curve with their stablecoin pools and factory algorithms that make for lower slippage on stablecoin swaps.
But if you wanted to swap something like BTC (or a wrapped equivalent) you have never been able to do it more efficiently than a CEX...
That is, until streaming swaps.
What's a Streaming Swap?
A Streaming Swap is essentially a series of swaps that are predetermined by the user.
Let's walk through it from the beginning:
A user wants to buy ETH with BTC. With the new Streaming Swap feature, they now technically have 3 major options at their disposal:
- They can trade on a CEX
- They can trade on Thorchain using a time-optimized swap
- They can trade on Thorchain using a price-optimized swap
For #1, we all know how that goes. Like I said before, the most efficient place to trade large amounts has always been CEXes.
If you have a large amount of crypto to trade for another crypto, you pretty much have nowhere else to turn than a CEX.
Alternatively, if you wanted to use Thorchain (pre-streaming swaps), you could set multiple orders and then wait for arbitragers to re-align prices after each swap. I do this on other DEXes, especially when trading low liquidity tokens.
#2 is the swap that we all know and are familiar with. You set an input and you see a (rough) output amount that is close to what you'll receive. That output amount also has a slippage amount attached to it.
The slippage amount tells you how much you are losing to pool slippage - a change in the pool depth due to a lack of liquidity.
If there was infinite liquidity, slippage would be 0%. But there isn't infinite liquidity. Thus, an equation exists that includes variables based on the amount you are swapping vs. the amount of liquidity available in the pool.
The more you swap vs. the amount of liquidity available, the higher the slippage.
Thus, to swap $5M on a Thorchain liquidity pool, you'd be faced with double-digit % slippage. That would be a big no-no and I don't think anyone would purposefully swap at a double digit % instantaneous loss.
Now you see the problem with Thorchain gaining significant adoption... without really deep liquidity, nobody will come to swap large amounts.
A time-optimized swap is still useful. You can swap smaller amounts with lower slippage and get them pushed through as fast as possible. Hence, time-optimized.
#3 is the new Streaming Swap feature.
A Streaming Swap is a price-optimized swap. You can see it in the graph at the top of this section. It allows you to set variables at the outset of your trade and then have you swap executed over a series of "sub swaps" in subsequent Thorchain blocks.
For example, a user can say they want to swap 25 BTC for 392 ETH and they want to do 9 sub swaps every 5 thorchain blocks.
This means that 9 sub swaps will be executed every 5 blocks and the user will then receive an output of the original swap amount (~392 ETH).
The slippage on this streaming swap can be the same or even lower than the slippage/fees you would pay on a CEX.
Game Changer for Thorchain
This post was a broad overview of the idea of a Streaming Swap. I plan to do more deep dives on this and also showcase me actually performing a streaming swap when the feature is ready.
I believe SS's (Streaming Swaps) will be a game changer for the Thorchain protocol.
Consider what I said above.. the #1 challenge facing Thorchain's mass adoption right now is liquidity. They seem to have nearly every piece in place to be the #1 DEX for trading crypto assets. The only issue left has been getting deep enough pool liquidity to kickstart liquidity black hole theory and see more assets pile in.
With the current liquidity levels and no SS, one could only do smaller trades. That being said, Thorchain still has amazing volume with all things considered.
SS will completely change that. I could forsee a 3-10x in trading volumes in a very short period of time even if liquidity doesn't increase. SS's allow you to essentially set a limit order that gets filled over some predetermined amount of time by allowing arb bots to trade in between your swap to get you a more efficient price on the assets you're swapping.
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