Swaps have come a long way in a short time. Crypto swap providers have made it simple to swap cryptocurrencies without the complex process of logging in to multiple exchange accounts. Even some wallet providers have streamlined the process.
As an important part of a defi ecosystem, these services have their niche and serve it well. But what about when users want to track multiple swaps? Is there a way to do that easily?
Thanks to Dexfolio's app, this process just got a whole lot easier. But before we dive into the details, let's take a quick look at how swaps work and how they fit into the whole blockchain ecosystem.
Swaps occur when a trader wants to exchange directly between trading pairs. For example, if a user wanted to add Bitcoin to their portfolio but only had Ethereum, a swap would need to take place.
In the past, this was a complicated process that required many steps and multiple accounts, but thanks to crypto swap providers such as Changelly, ChangeNow, SwapSpacem, the Kyber Network and others, it is a lot more user-friendly. Beginners especially benefit from these service providers who have simplified the bewildering mix of choices between a centralized exchange, a decentralized exchange, and the plethora of options for accounts.
Swapping should be a simple activity, and so should keeping track of swaps, which is where Dexfolio's mobile app comes in handy with its ability to track multiple DEX swaps.
But why DEX swaps? What about centralized exchanges?
Each has their advantages and disadvantages. Let's look at the pros and cons for swaps on both:
Dexfolio's app has been designed for decentralized exchanges
Despite the teething problems of a brand-new industry, decentralized finance is here to stay. The growth explosion in decentralized exchanges shows that savvy traders recognize their potential. Moreover, the problems inherent in centralized cryptocurrency exchanges are driving many traders' decisions to migrate to decentralized exchanges.
Industry experts predict that the demand for defi will continue to rise, especially as it comes up with reliable answers to problems such as cross-chain interoperability, offers a scaling solution for each scaling problem, and improves security.
When any transaction is conducted on a centralized cryptocurrency exchange, there are a couple of different ways it may take place depending on how the exchange is set up.
In the case of a custodial exchange, a user's private keys for their crypto assets are stored in the exchange database and a user can access their wallet by a simple authentication process. This type of exchange is intended to earn a profit for its services, so it is easy for users to deposit funds, open an exchange account, and manage digital assets. Support is provided, and additional features are added regularly.
In a non-custodial exchange, users retain their private keys and the exchange processes orders using their own order book. However, there is little user support, and it is difficult to swap between cryptocurrencies and fiat currencies.
Decentralized exchanges do things a little differently.
Decentralized exchanges also offer a couple of options, depending how their smart contracts operate.
In a currency-centric model, the exchange is built on a single-currency platform such as Ethereum. This means it can only escrow its own currency or those that are compatible. In the case of the Ethereum network, it can only escrow ERC20 coins and others that are related through its smart contracts.
A newer model is the currency-neutral model, which operates swaps between different native cryptocurrencies, removing the need for a coin that acts as a type of "middle man" as it underpins transactions. Through this model, order books are securely matched and managed using the blockchain, and assets can be exchanged.
One method of facilitating this newer method of swaps is to use the atomic swaps protocol. Although not an entire solution on its own, it has considerably changed the way swaps are conducted.
Atomic swaps is a smart contract technology that enables the exchange of cryptocurrencies without going through a central authority.
Atomic swap technology emerged as a solution to the problems facing anyone who wanted to exchange a coin for another that was not supported on their exchange of choice. In the past, traders had to migrate accounts or make various conversions between intermediate coins to finally conclude the swap. There was also a counterparty risk when trading or exchanging coins with another trader.
The solution to this problem was the use of Hash Timelock Contracts (HTLC), a function of the atomic swap technology. This is a smart contract that generates a cryptographic hash function, is time sensitive, and can be verified by both parties.
Both parties must acknowledge the transaction within a certain timeframe with the use of a cryptographic hash function. The time and acknowledgment are set within the smart contract's parameters, and failure to fulfill the requirements result in the transaction being nullified. This reduces the counterparty risk.
Each decentralized exchange offers advantages of its own, but the top decentralized exchanges share a few things in common that you should look out for in an exchange.
Dexfolio can help users choose wisely by tracking data from Ethereum smart contracts, the Binance Smart Chain, and the Polygon exchange, with the capacity to easily onboard other decentralized exchanges. One of the important metrics for decentralized exchange users is liquidity. Liquidity pool data is essential for traders who want to stake their assets and earn passive income. Liquidity providers are a crucial element of the defi world as they enable stability in a volatile trading market.
Historically, decentralized exchanges have been subject to large fluctuations in liquidity. This affects asset prices and fees, meaning that traders can receive very different returns from what they expected.
It was and still is important for traders on decentralized exchanges to be familiar with an asset before swapping or trading; information about trading history, market cap, reputation and background is vitally important when making investment decisions. Failure to do due diligence can result in significant losses and the risk falls solely on the investor.
Another risk factor for decentralized trading is slippage, which is the result of large fluctuations in liquidity. When a liquidity provider makes a large trade, it can affect liquidity pools and cause market volatility. The result is a trade with a price difference between the time it was initiated to the time the trade is concluded. Trades that take too long can also result in slippage, and traders can incur losses or find themselves paying unnecessarily high fees.
Dexfolio users can easily monitor their crypto trading activities and other information including liquidity pool data to assist with trading decisions.
There is debate over whether centralized exchanges offer better security than a decentralized exchange does, given that security measures must be built into its smart contract.
However, centralized exchanges have proven to be vulnerable to fraud, and by their very nature, require users to trust a third party with the security of their assets. This means that users get some protection as centralized exchanges guarantee client funds, but hackers always seem to find ways to exploit weaknesses. Fraudsters and thieves have made off with vast sums of investors' assets over the past few years.
No decentralized exchange is perfectly safe and even the best smart contract can contain flaws. This is good news and bad news for investors. It's bad news because all security precautions fall on the user, but good news because no third party has access to user accounts.
The best way to ensure security is to take the usual precautions such as never sharing account details with a third party, using off-chain or hardware wallets, and doing thorough research before undertaking a transaction or making an investment. Never use your private keys on a website, and be wary of anything that seems too good to be true. Don't invest more than you can afford to lose, and monitor your assets for anything unusual.
Avoid phishing and scams by using a link checker before clicking on links, don't click on ads (search for what you want instead), and don't open links or emails from unknown persons. Sometimes people will reach out pretending to be an admin or team member; if this happens, be suspicious, especially if you have never initiated contact with the company before.
Keeping track of multiple swaps could be hard work unless you have access to an app like Dexfolio's mobile tracker app. Its fully automated price feeds will give you information in real time, including a best-price aggregator to ensure that you are getting the best prices and the most accurate, up-to-date data.
Its aim is to be user-friendly and provide exactly what the community needs and no more; its UX/UI has been created with the user in mind. Its dashboard allows many functions with one tap and it's easy to see your data in one place.
This means it could only take a few minutes to manage your swap transactions, check different currencies, exchange tokens, or add more liquidity to a shared liquidity pool. Easy.
The 0x protocol is built on the Ethereum blockchain as an open protocol that allows peer-to-peer transactions.
The Loopring protocol is built on the Ethereum blockchain. It is a relatively new protocol that operates under a set of publicly available smart contracts to govern trade and settlement. It is an open platform that allows developer access.
But rather than locking tokens away in a smart contract or an exchange wallet, users retain their tokens in their personal wallets. Smart contracts collect trade orders from multiple exchanges and Loopring's ring miners match orders.