There are different methods for doing cross chain swaps. We want to investigate these solutions and compare them in this article. Also, we will look at the technology CrowdSwap uses in cross-chain exchanges and compare it with other defi protocols.
DeFi protocols are decentralized applications that provide financial services such as lending, borrowing, trading, and investing on the blockchain. cross chain swaps allow users to exchange tokens or assets across blockchains without intermediaries or centralized exchanges.
What are the cross chain swap solutions?
Different DeFi protocols use other solutions for submitting cross chain swaps, depending on their design and architecture. Some of the standard solutions are:
Bridges are smart contracts or protocols that connect two or more blockchains and enable the transfer of tokens or assets between them. Bridges usually lock the original tokens on one chain and mint equivalent tokens on another or vice versa.
Mint and burn tokens create and destroy tokens on different blockchains to enable cross chain swaps. This method involves locking or burning tokens on the source chain through a smart contract and unlocking or minting tokens on the destination chain. The minted tokens are pegged to the value of the original tokens and can be used on the destination chain.
Mint and burn tokens are a type of bridge solution for cross chain swaps. Bridges are smart contracts or protocols that connect two blockchains and enable transfers of tokens or assets. Bridges can use different methods, such as mint and burn, lock and mint, or liquidity pools. Mint and burn bridges suit blockchains with compatible smart contract functionality and security guarantees.
• Liquidity pools:
Liquidity pools are pools of tokens or assets that provide liquidity for cross chain swaps. Users can deposit their tokens or assets into a liquidity pool and receive tokens representing their share of the pool. They can then use the pool tokens to swap for other tokens or assets in the same or another pool.
Oracles are services or protocols that provide external data or information to smart contracts on the blockchain. Oracles can verify the state or validity of cross chain swaps and trigger the execution of smart contracts accordingly. For example, Chainlink is a decentralized Oracle network that provides data feeds, price feeds, random number generation, and other services for cross chain swaps.
• Peer-to-peer swaps:
Peer-to-peer cross chain swaps are cryptocurrency transactions that allow users to exchange different cryptocurrencies without needing a third-party exchange. This is possible because both users can interact directly, eliminating the need for a go-between. In a peer-to-peer cross chain swap, users generate a unique address on their respective blockchain networks and send their desired cryptocurrency to the other user’s address. Once the cryptocurrency is received, the user can exchange it for the other cryptocurrency. This type of transaction is often used to exchange tokens from different blockchain networks, such as Bitcoin and Ethereum.
What solutions does CrowdSwap use in cross chain swap?
Network interoperability is a critical factor in the success of decentralized finance (DeFi) protocols. Interoperability on networks refers to the ability of two or more systems or components to exchange data and use the information that has been exchanged. It allows users to access various services and assets across different networks, creating a more efficient and secure financial ecosystem. Network interoperability also makes it easier to move assets between networks, allowing users to take advantage of different features and services on each network. This can provide a more secure and efficient way to manage funds and access a wide range of services and products. Additionally, network interoperability can also help reduce transaction costs and increase liquidity.
CrowdSwap aims to keep users’ funds away from hacks and vulnerabilities by using different solutions and technologies to do cross chain swaps.
CrowdSwap is a DEX and, as a DEX, can do peer-to-peer token exchanges across different blockchains without intermediaries or centralized platforms. Decentralized exchanges (DEXs) allow users to trade tokens or assets without intermediaries or custodians. DEXs can use other methods to enable cross chain swaps, such as bridges, wrapped tokens, liquidity pools, oracles, etc.
CrowdSwap is a DEX using a non-liquidity base and peer-to-peer technologies for chain token exchanges.
At CrowdSwap, we use the liquidity of multiple DEXes for swapping tokens, and users can exchange any token for any token on supported networks. Some other projects make single token pools on their platforms, and users can hold their tokens in the pools and gain rewards. Then the protocol uses those liquidities for swapping tokens. For example, if a user swaps USDT on Polygon to USDT on the BSC network. The platform locks the amount of USDT that the user will exchange in a pool, and on the other side of the destination network, USDT tokens on BSC delivers to the user. In this case, users pay a fee (from the initial network), and the platform divides some fees between the liquidity providers in the pool.
At CrowdSwap, we don’t use single-token liquidity pools for swapping or keep any liquidity from users in our pools.
For example, Multichain, which recently was hacked, had unauthorized access to single liquidity pools. Some fake transactions withdrew tokens from the destination network, and as a result, users who added liquidity to the pools lost their funds.
What are the advantages of using DEXes in cross chain swaps?
Some of the advantages of using DEXes for peer-to-peer cross chain swaps are:
• They eliminate the need for a centralized exchange, which can reduce transaction fees, enhance security, and increase privacy.
• They enable blockchain interoperability, allowing users to trade compatible cryptocurrencies without intermediaries or wrappers.
• They ensure atomicity, meaning the swap either happens entirely or not at all, preventing the risk of losing funds or being cheated.
• They are fast and scalable, as they can be executed on-chain or off-chain using secondary layers like the Lightning Network.
How can users ensure cross-chain platforms?
Defi Platforms that use multi-sig solutions or work as DAO are safe, and users can trust them because no one has dedicated access to funds and can’t withdraw the liquidity without other stakeholders’ permission. This is precisely the method that we have at CrowdSwap.
We aim to have a fully decentralized withdrawal mechanism. A fully decentralized withdrawal mechanism withdraws tokens or assets from a decentralized exchange or platform without relying on a centralized entity or intermediary. A fully decentralized withdrawal mechanism ensures that users have complete control and custody of their funds and can withdraw them whenever they want without any restrictions or fees.