One of the main problems in DeFi (Decentralized Finance) is the seamless swapping of tokens. If a user wants to exchange one token for another, they can only do so if the wallet or exchange supports it with a token pairing. The issue here is that not all tokens are swappable with each other. You will need to find a token pair first, to make an intermediate exchange before you can swap for the token you need.
This is because there are many types of blockchains used by tokens and they are not all compatible with each other. The most liquid tokens are the easiest to pair because they have the most liquidity. When you want to swap from a lesser known token for another token, if it does not have a supported pair to swap, you will need to swap it first with a more liquid token.
For example, let’s say you have a token called X and you want to swap it for Z. You realize that you cannot swap them directly with each other. Token Z does not have a pairing with X, so you will have to swap it with another token first. You then decide to swap with token Y, which is paired with both X and Z. You will need to exchange X for Y, and then you can swap Y for Z. That is the best way to convert tokens, but it can also be more time consuming and cost more in terms of transaction fees.
It would be so much easier if things can take place on the backend. If a user can just send their order to swap X for Z, without having to perform any other intermediate step, it would save time and money. It would also be more convenient when it comes to user experience.
Symbiosis provides a solution to swapping tokens across different blockchains. It is a liquidity protocol that integrates the features of a multi-chain AMM (Automated Market Maker) and DEX (Decentralized Exchange). It is like a decentralized version of a digital exchange (e.g. Binance, Coinbase) that functions as an AMM (e.g. Uniswap).
With Symbiosis, users can swap any token across different blockchains with no additional software required. This provides interoperability between token swaps. As an AMM, it automates the order book system for unlimited token pairs with the best exchange rates offered. As a DEX, swapping of tokens is direct without requiring a trusted third-party like a payment processor or intermediary.
The process of swapping tokens from Symbiosis is called a cross-chain swap. This allows tokens to be traded across dissimilar blockchains without requiring the authorization from another exchange to process the transaction. Think of it as an open system that facilitates the flow of transactions. The tokens can also be on blockchains that are either EVM (Ethereum Virtual Machine) or non-EVM compatible. In order to get the best prices for swaps, Symbiosis routes transactions to other AMM DEXes like Uniswap or PancakeSwap. This allows for better price discovery by exploring the best options. Users also don’t have to pay different gas fees across blockchains since the protocol abstracts it into a single transaction fee.
An important benefit of Symbiosis is that it also addresses some issues that can occur during swaps. These are slippage and impermanent loss. A slippage occurs when there is a divergence in the price of the token from the time it was ordered and the fulfillment of an order. This can lead to what is called an impermanent loss. If the price recovers, then the loss is only temporary. However, if the price of a token does not recover right away and it is used for another transaction the loss becomes permanent. To address this, Symbiosis uses liquidity pools that includes stablecoins to offset market volatility with little to no slippage.
Swaps are just one of the many features of Symbiosis, which users will find very useful. It provides a much simpler solution for moving liquidity across multiple chains without experiencing fragmentation due to the many interfaces and processes involved. Current systems make swapping more difficult to the average user. What Symbiosis offers is a one-stop-shop solution for swapping different types of cryptocurrencies with less difficulty.
Disclosure: This article was written for #SymbiosisDeFined. This is not in any way financial advice, but for educational purposes only. DYOR always to verify the information.
First Published At Publish0x (3/23/22)