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Last updated: Jan 15, 2024
ParaSwap, launched in 2020 by Mounir Benchemled, is a decentralized exchange (DEX) aggregator operating in the decentralized finance (DeFi) sector. Its primary function is to facilitate the swapping of various cryptocurrencies, particularly ERC-20 tokens, by aggregating liquidity and pricing data from multiple decentralized exchanges. The platform aims to ensure users can trade their assets at the most favorable rates available across these exchanges.
As a DEX aggregator, ParaSwap is designed to address certain challenges inherent in decentralized exchanges, such as liquidity issues and the complexity of finding the best trading rates. By consolidating data from numerous exchanges, it offers users improved liquidity, potentially better trading rates, and a more streamlined trading experience.
In addition to its core functionality, ParaSwap has introduced features like MultiPath, which finds efficient trading paths across exchanges, and ParaSwapPool, which provides a confidential market maker pool as its own decentralized economic liquidity source.
ParaSwap operates as a platform that amalgamates liquidity and pricing data from over 100 different decentralized exchanges across multiple Layer 1 (L1) and Layer 2 (L2) blockchain networks. L1 networks, like Ethereum, are foundational blockchains, while L2 networks are additional layers created to enhance scalability and efficiency.
The integration with these multiple protocols is achieved through the use of APIs (Application Programming Interfaces) and smart contracts. APIs enable ParaSwap to collect real-time data on prices and liquidity from various DEXs. Smart contracts, which are autonomous and self-executing contracts with the terms of the agreement directly written into code, are utilized to securely execute trades based on the aggregated data.
In addition to aggregating multiple DEXs, ParaSwap supports several blockchain networks, including Ethereum, BNB Smart Chain, Avalanche, Polygon, Fantom, Arbitrum, Base, and Optimism. This multichain support is crucial for expanding the platform's reach and accessibility, allowing users to engage with a diverse range of assets and liquidity pools available in different blockchain ecosystems.
Furthermore, ParaSwap optimizes the token swapping process with advanced algorithms that search for the best available rates across the integrated exchanges. These algorithms consider factors like liquidity depth, slippage, transaction fees, and network congestion to determine the most efficient route for trade execution. The platform's smart contracts then execute these transactions, aiming to optimize factors such as speed and cost efficiency.
The ParaSwap v5 API is a sophisticated tool that serves as a crucial component in the platform's decentralized exchange (DEX) aggregation services. It's designed to enable users to fetch optimal prices for token swaps and construct transaction data for executing these trades on-chain. The API primarily supports EVM-based networks and tokens following the ERC20 standard.
The primary functionality of the ParaSwap V5 API is to provide users with the best market prices for token swaps. This is done by aggregating data over multiple decentralized exchanges, market makers, and lending protocols.
To obtain these prices, users interact with the /prices endpoint of the API. This endpoint requires users to input details such as the source and destination token addresses, amounts, and the specific blockchain network.
The response from this endpoint includes the best route for the swap, considering various factors like liquidity, slippage, and exchange rates across different platforms. Once users are satisfied with the price obtained from the /prices endpoint, they can proceed to build the transaction data using the /transactions endpoint.
This step involves preparing a transaction object that includes details like the source and destination tokens, the amount to be swapped, and the slippage tolerance.
Additionally, users need to set an appropriate allowance for the tokenTransferProxy (a parameter in the API response), which is crucial for executing the swap.
With the transaction data ready, users can then execute the swap on the blockchain using their chosen provider. This step finalizes the swap and completes the process.
ParaSwap's Multichain Limit Orders Protocol functions as an advanced trading tool designed to offer a versatile and efficient way of trading both cryptocurrencies and non-fungible tokens (NFTs) across various blockchains. The protocol is accessible on multiple blockchains, including Ethereum, Polygon, BNB Smart Chain, Fantom, Avalanche, and Arbitrum.
Unlike traditional limit order protocols that primarily focus on token-to-token transactions, ParaSwap's protocol extends its functionalities to NFTs. This means users can place limit orders not only for token swaps but also for buying or selling NFTs. The protocol supports various trading modes including peer-to-peer (P2P), over-the-counter (OTC), and request for quotation (RFQ).
A key focus of ParaSwap's protocol is on gas efficiency, aiming to reduce the transaction costs for users. According to ParaSwap, their limit orders are more gas-efficient compared to other similar platforms.
The protocol allows for advanced trading tools specifically for NFTs. For instance, users can buy NFTs using multiple tokens, offering a higher degree of flexibility in how trades can be structured. ParaSwap has chosen not to enable protocol fees for this service, focusing on a user-first approach and making it more accessible for users.
Using ParaSwap involves several steps to ensure a smooth and efficient trading experience. The first step to using ParaSwap is to have a wallet compatible with the platform - ParaSwap supports a wide range of web3 wallets including Metamask and wallets integrated with the WalletConnect Protocol.
The core feature of ParaSwap is its ability to aggregate token swap rates from multiple decentralized exchanges. When you enter a token pair and an amount to swap, the platform rapidly compares rates across these exchanges and presents you with the best available option. This process involves considering factors like liquidity and slippage to ensure you receive the most value for your trade.
ParaSwap's interface is designed for simplicity and ease of use. It typically displays options for selecting tokens and entering the amount for the trade. The process is intuitive, with clear directions guiding you through each step of the trade. After confirming the details of your swap, you'll need to confirm the transaction in your connected wallet to complete the process.
One of the platform's unique features is the MultiPath protocol. This feature finds the most efficient trading routes by possibly splitting a transaction across several exchanges or finding intermediary tokens to optimize the trade. ParaSwap also provides advanced trading options for experienced users. These include setting slippage tolerance and specifying gas fees.
The platform also supports a variety of blockchain networks beyond Ethereum, like BNB Smart Chain, Polygon, and others.
The ParaSwap PSP token is a central element of the ParaSwap ecosystem, primarily designed to support its decentralization and enhance protocol efficiency. The PSP token, since its introduction, has been instrumental in governing the ParaSwap Protocol and the ParaSwap Decentralized Autonomous Organization (DAO).
A key aspect of the PSP token is its involvement in the governance of the ParaSwap ecosystem. Holders of PSP tokens have the ability to vote on various proposals that shape the future and functionality of the ParaSwap platform.
In addition to governance, PSP tokens have utility in staking. Users who stake their PSP tokens can also receive incentives, including gas refunds based on their activity on the ParaSwap platform.
The PSP token underwent a significant update with the introduction of PSP 2.0, which brought about a comprehensive overhaul of the tokenomics model. PSP 2.0 aimed to reduce PSP token emissions significantly and introduced a new way of incentivizing users who add value to ParaSwap. One of the notable features of PSP 2.0 is the compensation of these users with a portion of the protocol fees in the form of native gas tokens, like ETH.
PSP 2.0 also introduced a new staking system known as “Social Escrow” (sePSP). This system is designed to reward users who engage in actions beneficial to the protocol and the growth of the DAO. Staking in PSP 2.0 is characterized by two distinct methods: sePSP1 and sePSP2, each offering a unique staking experience and aimed at maximizing the utility of the staked PSP.
In both pools, the staked PSP tokens play a role in governance and decision-making within the ParaSwap DAO. The stakers are incentivized through a share of the protocol fees and have a say in the future development and direction of the ParaSwap platform.
Furthermore, PSP 2.0 brought changes in the distribution of protocol fees, allocating a major portion to stakers (80%) and the rest to the DAO treasury.
ParaSwap's governance model revolves around the ParaSwap DAO (Decentralized Autonomous Organization), which facilitates community-driven decision-making. In the governance structure of ParaSwap, PSP token holders play a crucial role. They have the power to vote on various improvement proposals that influence the future direction of the platform.
The governance framework of ParaSwap includes standard procedures for submitting and voting on proposals. For instance, a minimum number of PSP tokens is required to submit proposals, ensuring that only committed members of the community can initiate changes. Additionally, the governance model sets standard durations for voting on proposals, allowing ample time for members to participate in the decision-making process.
Quorum requirements are also an essential aspect of ParaSwap's governance. These requirements dictate the minimum number of votes needed for a decision to be valid, ensuring that decisions are made with sufficient community participation. The quorum is typically set as a percentage of the circulating PSP supply, adapting to the dynamic nature of the token's distribution.
The governance model also contemplates implementation delays for proposals, allowing developers adequate time to execute changes safely and efficiently. This timeframe can be specific to each proposal, considering its complexity and impact.
Being a DEX aggregator, ParaSwap pulls liquidity from various decentralized exchanges. This way, ParaSwap does not take custody of users' funds. Instead, it facilitates token swaps by interacting with supported DEXs. This means users remain in control of their assets throughout the trading process, adding a layer of security compared to platforms where assets are held by a third party.
The ParaSwap platform has undergone multiple independent audits of its smart contracts. All severe issues found have been addressed by the Paraswap team and changes have been implemented to secure the protocol.
Additionally, ParaSwap has taken steps to safeguard its protocol against malicious attacks by having a significant insurance fund with Unslashed Finance to cover potential risks associated with the platform and its staking contracts.
The ParaSwap team is led by its founder, Mounir Benchemled. He started ParaSwap with the vision of addressing liquidity issues in the cryptocurrency market and improving transaction efficiency for users. Initially bootstrapped, the project has grown significantly since its inception, attracting talent in both technical and non-technical roles. Benchemled's background and experience in the crypto industry have been pivotal in shaping the direction of ParaSwap, aiming to make it a go-to platform for token swaps across various blockchain networks.
The current roadmap for ParaSwap, as of early 2024, reflects their ongoing efforts in decentralized governance and protocol improvements. Key focus areas include reducing the total supply of $PSP, enhancing the efficiency of DAO governance, and improving gas cost efficiency on various networks like Optimism and Arbitrum. Additionally, ParaSwap is exploring innovations in trading strategies, governance processes, and partnerships to further integrate and bolster the DeFi ecosystem. These initiatives are guided by proposals and discussions within the ParaSwap DAO community. For detailed insights into these developments, the ParaSwap DAO's governance forum is the primary source of up-to-date information and discussions on these topics.