What is ParaSwap?
|— Decentralized exchanges (DEX) are automated, borderless, censorship-resistant exchange platforms that allow you to exchange your crypto assets without relying on any intermediary.|
— Recently, DEXs have gained immense popularity due to the benefits they offer. However, they come with complex interfaces and often face liquidity issues that result in a poor token swapping experience.
— ParaSwap is a decentralized exchange aggregator that brings together multiple DEXs on one platform to solve the challenges that individual DEXs face. It functions like the Expedia of decentralized exchanges that lists the exchange rates of assets (instead of hotel prices) from across DEXs and lets you trade at the best possible price.
— In this article, we will delve into the basics of token swapping and crypto exchanges, then explore how ParaSwap presents a solution.
DeFi’s strength is evolving to find solutions, and ParaSwap is one of the latest examples. Here we address the question: what is ParaSwap – and how can it benefit you?
You see a world of cryptocurrencies out there… thousands of them, lined up for you to pick and add to your crypto wallet. And what’s the best way to do that? Token swapping. You can acquire new crypto tokens by swapping your existing tokens or fiat funds on a crypto exchange. However, there are multiple issues that cryptocurrency exchanges face today, and ParaSwap aims to solve some of those issues.
So, in this article, we will delve into the basics of token swapping and crypto exchanges, then explore how our friends at ParaSwap offer a solution.
What is Token Swapping?
So, suppose you own ETH and you want to swap it for USDT. To do this, you can either use a centralized exchange or a decentralized one depending on where you’re storing your ETH.
If you prefer to use a decentralized exchange such as Paraswap, you can simply specify the token you want to sell and the tokens you want to get in return and confirm the transaction. The exchange will do the math based on the latest price and update your Ethereum account with a corresponding amount of USDT.
The above process neither involves a seller nor a central intermediary who operates the transactions. This is called token swapping.
But if no central intermediary is involved, where does the USDT come from? Scroll down! We’ll answer that in the section below.
Centralized Exchange vs. Decentralized Exchange
If you noticed, we mentioned two kinds of exchanges in the above example: centralized exchange (CEX) and decentralized exchange (DEX). Let’s demystify.
The Case for Centralized Exchanges
Binance, Coinbase, and Huobi are popular examples of a CEX. These exchanges function similarly to a stock brokerage platform that allows you to trade stocks. They list all buy and sell orders for different tokens and match the orders based on their respective prices.
Let’s say you place an order to swap ETH for USDT on a CEX. What the exchange does next is it lists your order on its order book and waits to find a buyer who’s willing to swap their
USDT for ETH. Once the exchange finds a suitable trade, it matches the order, and your order is executed.
People so far have preferred using CEXs because of their easily navigable interfaces and smooth trading experience due to high liquidity. The latter results in quick trade execution and low slippage, which is the difference in the price of your assets between the time of purchase and the completion of the transaction.
But there are also major trade-offs. To begin with, these exchanges are centralized, meaning there’s a central entity that has the ultimate control over it, which could expose them to hacks, mismanagement, or regulatory crackdowns. Further, the wallet you get on an exchange is a custodial wallet meaning that the exchange controls the private keys related to your assets, you only get to use your standard Web2 logins i.e email and password. private keys. In other words, with a CEX you get limited ownership of your assets.
The Case for Decentralized Exchanges (DEX)
Decentralized exchanges came into existence to solve the challenges posed by centralized exchanges. Instead of using a centralized infrastructure, they use decentralized smart contracts to execute orders replacing order books of CEXs with automated market makers that use liquidity pools to fill token swap requests.
Too much jargon? Let’s simplify that for you.
In the absence of order books to match people’s orders, there are pools of particular asset pairs where anyone can add their tokens. Doing so offers the required liquidity for other users to deposit one of the assets in a pool and withdraw an equal amount of the other token (the process called swapping). And these swaps are moderated using self-executing codes called smart contracts.
The benefit of using a DEX is that you can simply integrate your non-custodial crypto wallets. So, when you swap your tokens on a DEX, your tokens always remain on your wallet, whose private keys you own.
But DEXs, as it stands, often have complex user interfaces and may lack liquidity for token pairs. This makes it confusing and sometimes nearly impossible for users to swap crypto assets. Additionally, different DEXs may have different token swap rates, making it even more time-consuming as they have to research and find the best swap rates manually.
To minimize these challenges faced by DEX users and make decentralized token swaps easier, ParaSwap was developed.
What is ParaSwap?
ParaSwap is to DEXs what Expedia is to hotels — an aggregator. Similar to how Expedia searches for hotels from across many hotel booking sites and helps you find the best booking price without forcing you to switch between ten different tabs or apps, ParaSwap is a decentralized protocol that searches for the price of tokens from across the most popular decentralized exchanges on Ethereum and lets you swap your tokens at the best possible rate.
The platform recently launched its native token PSP that was airdropped to its existing users. PSP is the governance token of ParaSwap that offers its users the ability to propose and vote on changes they want on the platform. This is a huge step forward for ParaSwap as it makes the platform more decentralized and user-focused, and it has the potential to attract more crypto users.
If you’re still unsure why you should use ParaSwap instead of using a DEX directly, let’s check out some of the major advantages of using ParaSwap.
Absolute Ownership, More Freedom
Very often, people prefer CEXs over DEXs and compromise with the ownership of their funds for a smoother trading experience. But ParaSwap kicks the complexity of DEXs out of the window and offers you a friendly interface to swap your assets while still ensuring that you remain in control of your assets.
Being a decentralized protocol, ParaSwap only requires you to connect your non-custodial wallet with it. That means, your assets always remain with you and only you control them. There’s no way ParaSwap could restrict you from accessing, transferring, or trading those assets.
Better Liquidity, Smoother Trades
Let’s say you want to swap ETH for USDT. You go to a crypto exchange but realize that it does not have the required liquidity for this token pair. You then go to a few other exchanges and see the same result before finally landing on that one exchange that has enough liquidity for you to swap your assets. Even then, you may have to deal with high slippage that can affect the final amount you receive for the swap.
This may not happen for asset pairs such as ETH-USDT, but it surely does for new tokens. For such cases, ParaSwap solves this issue. As a DEX aggregator, it brings together the liquidity of multiple exchanges into one platform.
This negates the need for you to go from exchange to exchange in search of liquidity. All you need to do on ParaSwap is type the tokens you want to swap and the platform does the searching for you. It then executes your trade either through one exchange or multiple exchanges where it finds sufficient liquidity. Through this, ParaSwap not only cuts down the time you spend on swapping but also minimizes the potential slippage on swaps.
See, save you the day!
Lower Prices, Lower Fees
Per the claims of the project founder, using ParaSwap to exchange your assets may save you between 5% to 10% due to the varying swap rates. And if you are an avid trader, that can make a huge difference in the short and long terms. ParaSwap achieves this by splitting the orders and using multiple DEXs to execute a swap, which results in the tokens being swapped at better rates. It may also first swap your tokens with a third token and then convert that to the token you requested. Doing so sometimes offers a better rate of exchange due to the difference in exchange rates of different token pairs.
Besides, as the fees across platforms vary considerably, ParaSwap also customizes its trades to minimize the fee you pay per trade. That makes it a double win.
Friendlier Interface, Simpler Experience
Apart from the trading side of things, ParaSwap also comes with a highly user-friendly interface that resembles the Web2 applications that we are used to. This makes navigating through the platform and swapping tokens even more convenient, thus making people’s DeFi experience much better.
Using ParaSwap in the Safest Way
ParaSwap is a decentralized platform and you can easily connect your non-custodial software wallet to it. While this would offer you complete control over your cryptos, it still keeps your funds exposed to cyber threats. That’s because wallets like software wallets (or hot wallets) run on your computer system and they remain connected to the internet, thus exposing your wallet to potential hacks and thefts.
ParaSwap recently integrated with Ledger, bringing the exchange’s interface directly onto the Ledger Live application. So, now, you can easily swap the cryptos stored on your Ledger device using ParaSwap and get the best swap rates within the Ledger ecosystem itself. And all this is done while your private keys are stored safely on your hardware wallet, which never connects with the internet.
Here are the simple steps to use ParaSwap on Ledger Live:
1. Connect your Ledger wallet to your computer and open Ledger Live.
2. Navigate to the “Discover” section on the app and click on ParaSwap.
3. Enter the assets that you want to swap in the ParaSwap window that opens within Ledger Live.
4. Review the details of the transaction and confirm the transaction by clicking the two buttons on your Ledger wallet when you are prompted for confirmation.
Apart from your keys being stored offline at all times, the fact that the only way to approve transactions for the funds in your Ledger wallet is to physically press the buttons on your wallet amplifies the security of your money by integrating two-factor authentication into the process. That’s the reason using Ledger Live and ParaSwap can be the safest way to swap your tokens.
A Long Way to Go for DeFi
DeFi is evolving and so are its platforms. ParaSwap is a great step ahead for onboarding more people onto the decentralized finance landscape so they can experience true freedom without having to deal with the complexities of most DeFi platforms. And Ledger’s integration with ParaSwap means you can access all of this without your private keys ever leaving your device. So, if you want to swap your tokens, there’s no better, smoother, and safer combination to use.
Knowledge is power.
Trust yourself and keep on learning. If DeFi’s your thing and you want to know more, check out our School of Block epsiode all about the building blocks of the system – the smart contract.