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Last updated: Aug 21, 2023
ParaSwap acts as a middleware facilitating and optimizing token swaps by aggregating decentralized exchanges and other DeFi services in one interface, to ease users’ interactions with DeFi on Ethereum and some EVM-compatible blockchains. Essentially, what ParaSwap does is check rates on supported DEXs when a user wants to do a swap, and thus optimizes the price range according to the best deal.
The company’s aggregation and order splitting services are efficient at distributing larger orders to reduce slippage. However, since each trade consists of many parameters at play, so in cases of relatively small transactions interacting with the exchange may be more optimal and result in lower gas costs. Nevertheless, the team also warns that each case is different, so saving on gas may be less or equal to the amount saved by using ParaSwap’s services.
When a user wants to initialize a token swap, the protocol looks through all available pools for the token pair, and determines the price and available liquidity. Using this data, and taking into consideration the size of the desired trade, ParaSwap suggests the optimal routing of the deal, so that if needed numerous splits and additional hops can be made to achieve the best available price. Additionally, ParaSwap utilizes the DexLib library in its backend to integrate with decentralized exchanges.
All transactions need to be allowed by the user, by signing the transaction as approved through their wallet, and then the deal can be facilitated. In some rare cases, the user might even receive more of the destination tokens than expected, due to positive slippage opportunities.
ParaSwap’s Multipath feature is what makes the company’s services possible. Through it, the protocol can consider indirect trading routes and seamlessly interact with various services, such as lending platforms to find the best possible routing. The algorithm explores any possible path, including the ones involving extra hops. The protocol can also interact with more than one service and smart contract with one gas-efficient transaction further reducing the cost of the whole process.
Since each trade made on ParaSwap gets settled on the Ethereum mainnet, it incurs a gas fee paid to ETH miners. Depending on the chosen gas price the time required for the validation of the transaction can vary. For these reasons, the platform takes into consideration the optimal gas values which will ensure the transaction will pass in a reasonable period of time.
ParaSwap pools liquidity submitted by professional liquidity providers in its pool, which currently represents an RFQ system with professional market makers giving access not only to institutional liquidity sources, but also providing for MEV-resistant (MEV or Miner Extractable Value stands for the maximum value that can be extracted from block production through including, excluding or changing the order of transactions in a block) and slippage-free swaps. These market makers are incentivized with PSP tokens, depending on PSP stakers’ decisions and the results of their performance.
The full list of ParaSwap’s integrated partnerships with other liquidity provider projects can be found in the official documentation provided on the platform.
To interact with the ParaSwap app, users need to make sure they have access to a supported by ParaSwap wallet. This includes MetaMask, and almost all other wallets supporting Ethereum blockchain-based tokens. The platform tries to take into consideration the complexity of comparing prices and optimizing the right swap strategy, including taking into consideration variables such as gas costs. The interface of the project is similar to that of Uniswap with the difference being in some additional information related to the various optimizations implemented by ParaSwap.
The ParaSwap app has a detailed dashboard with various protocol metrics available publicly here.
The company also provides Swap & Transfer services to its users to facilitate situations where they might need to send the swapped tokens to a different address. This feature can also be used to execute two distinct operations through a single transaction.
The main use cases for ParaSwap include large swaps (the company describes those, as deals worth more than 15 ETH), optimizing capital deployment, claiming profits, and maintaining savings accounts, as well as means of payment to third-party services.
Currently, there are no fees ParaSwap takes for its services, and there is no additional markup taken on swaps when interacting directly with the service. The only cost faced by users exchanging tokens through the platform is the cost of issuing the transaction over the Ethereum network or otherwise known as Gas commissions.
However, since the protocol can be integrated by third parties, the decision on what the size of the fees would be in such situations remains theirs. Yet, ParaSwap takes a portion of these hypothetical fees, the default size of this portion is currently 15%.
In cases where there is positive slippage, the platform only takes 50% of it and allocates it towards the further growth of the protocol, and in cases where ParaSwap’s features are used through a third-party service, this possible profit can be taken by the company providing the service.
The PSP token is currently available on the Ethereum, BSC, Polygon, and soon Avalanche networks. The total supply of the token is 2 billion PSP, with 7.5% of it given to existing active users of the platform to bootstrap the community upon the launch of the digital asset. The rest of the tokens are allocated as follows: 51% for the growth of the Ecosystem, 14% for seed investors, 10% for reserves, 2.4% for pre-seed investors and advisors, and 17.6% for the core team, and 5% for future team members. All investors’ tokens are subject to a minimum of two years vesting period with a four-month lockup period and all core team funds are vested for up to three and a half years.
Besides aggregating DEXes, ParaSwap includes the liquidity provided by market makers to facilitate better swap prices. Additionally, all PSP token holders can stake on market makers to add weight to their rewards, these incentives market makers to deliver better rates, which are split between them and stakers at the end of each epoch – 14 days.
Unstaking is subject to a seven-day lock-up period, during which the staker doesn’t earn any PSP yields, and can always re-enter the pool or cancel the withdrawal process. Since rewards are auto-compounded at the end of each epoch, users can apply a passive staking strategy as long as they are comfortable with their choice of a market maker.
Market Maker’s earned PSP tokens are subject to a minimal lockup period of six months.
The ParaSwap team is led by its founder Mounir Benchemled, who describes himself as an entrepreneur and software engineer with high enthusiasm for startups and tech products. The rest of the team is split into front- and backend engineers operating in one-week cycles, with the main focus on security, designing more efficient algorithms and blockchain mechanics, and scale.
As a means of safeguarding the protocol against malicious attacks, the ParaSwap team has a $30M Unslashed Finance insurance fund, covering ParaSwap and its PSP staking contracts. Besides that, the company uses all fees collected by the platform to invest in external audits and anything of need for the long-term safety of the protocol.
The third component of ParaSwap’s security was launched fairly recently through a proposal submitted in the project’s governance forum. This module includes accepting Balancer LP tokens for the 80% PSP – 20% ETH pool. Any users owning this token can stakelock it to earn additional PSP rewards. When requesting a withdrawal, the user’s LP tokens are subject to a 14-days cooldown period. All PSP required for payment of rewards is to be supplied from the Ecosystem Reserve fund. This liquidity component of the security of the platform is inspired by Aave’s Safety module, as mentioned by the team.
ParaSwap audits can be found in the protocol dashboard on this webpage.
The ParaSwap early users and investors include Blockchain Capital, Lemniscap, Coinfund, Spartan Capital, CoinGecko, Alameda Research, CMS Holdings, Arrington XRP Capital, Woodstock Fund, Jarvis Network, DeFiance Capital, Stani Kulechov (founder of Aave), Itamar Lesuisse & Julien Niset (founders of Argent), Zurab Kazhiloti, Réda Berrehili, Cyril Paglino, Rand Hindi and David J. Namdar, and others.
ParaSwap also works closely with Infura, on their infrastructure needs. The company implements Infura’s APIs and Archive Node data, to source on-chain prices, query user balances, and track the state of user transactions. ParaSwap also collaborates with ChainLink, and the company is integrated into the protocols of Argent, Monolith, MetaMask, and Ledger Live wallet projects. As well as aggregator projects such as DeBank DeFi, Frontier, Staking Rewards, YDexFinance, Reef DeFi, and DexTProtocol. There are also ParaSwap integrations on Savitar, Enzyme Finance, Stake DAO, Mooni, AAVE, Jarvis, Pillar, and Unslashed.
Currently, the developers behind the project are working on better multi-path routing algorithms, to provide for even better prices, while also allowing the advanced traders more customizability in their transactions. There is work being done on the on-chain price feed, with plans to open source and improve the smart contract. Another major point of the protocol’s development is the introduction of Flash Loans, open-source widgets targeted at dApps and websites wishing to provide decentralized aggregated liquidity to their users. Paraswap also works on cross-chain swaps, starting with the Bitcoin blockchain and following up with others soon.
https://developers.paraswap.network/api/master
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Last updated: Aug 21, 2023
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