ParaSwap Crypto (PSP): What It Is & Why You Should Care

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Exchange, trade, swap or convert — these terms imply giving up a crypto asset you currently hold in favor of a different one. Today, there’s no lack of decentralized exchange options (DEXs) available for users to conveniently swap crypto assets. DEX trading witnesses billions of dollars in swaps every week, with DEX aggregators making up 22% of the total crypto trade volume as of November 2021.

Recently, ParaSwap has become a well-known name in the world of DEXs. From November 18–19, 2021, the price of ParaSwap’s native token PSP grew 26% from $0.77 to $1.03. While some traders have started using ParaSwap to exchange crypto tokens, others have yet to discover its benefits. In this article, we delve into the inner workings of ParaSwap and PSP.

What Is ParaSwap?

ParaSwap is a decentralized middleware aggregator on the Ethereum blockchain that offers the best prices across various DEXs.

On ParaSwap, users can see a helpful summary of the transactions they’ve made, including the approximate cost, price impact and minimum tokens received. Routing details are also displayed to help users understand their tokens’ path and to prevent confusion.

In principle, ParaSwap serves as an intermediary between DeFi users and DeFi services. It compares liquidity from over 20 decentralized exchanges and brings all functions into a singular portal for maximum user convenience.

Various large name investors support the ParaSwap protocol. During their recent seed funding round, ParaSwap earned the backing of established firms such as CoinFund, Blockchain Capital and Arrington XRP Capital. ParaSwap’s goal is to become the preferred DEX aggregator on Ethereum and enable the quickest trades at the best rates.

Apart from Ethereum, ParaSwap also supports Polygon, Avalanche, and Binance Smart Chain.

What Is PSP?

The native/governance token of ParaSwap, PSP is used to increase the decentralization and efficacy of the protocol. About 20,000 users just received the airdrop of ParaSwap tokens, worth more than $240 million at the moment.

Source: Twitter

In a retroactive airdrop, ParaSwap allocated 150 million PSP tokens, or 7.5% of the total supply, to active users of the protocol.

At present, the PSP token has two use cases:

  • Governance: PSP holders have governance rights over the ParaSwap protocol through the ParaSwap DAO.
  • Staking: Users can stake their PSP tokens and receive an auto-compounding annual percentage yield (APY).

How Does ParaSwap Work?

ParaSwap gives its end users an ideal route and effective price through a series of internal routing mechanisms. It helps users save time and effort by making price comparison easy and optimizing trading strategies.

When a user taps into the exchange, ParaSwap identifies the best rate with the help of a pricing aggregator that retrieves off-chain pricing. It then executes the swap using a smart contract to deposit the fee into a wallet. This process may involve breaking a single order into various exchanges if that’s the most cost-effective method.

Here’s how trading takes place on ParaSwap:

Step 1: The user selects the number of tokens they want to trade.

Step 2: ParaSwap determines the best trading rate across all supported DEXs.

Step 3: ParaSwap gives the user detailed information about all trading routes.

Step 4: The user can select the most suitable route and initiate a transaction.

Step 5: The swap is then conducted, and the user receives the corresponding tokens.

Key Features of ParaSwap

The features below make ParaSwap unique.

ParaSwapPool 

DEX aggregators typically don’t hold or store any liquidity of their own. Conversely, ParaSwapPool allows users to access ParaSwap’s private Market Makers pool as its decentralized finance (DeFi) liquidity source, creating opportunities for efficient pathing and optimization of transactions. 

ParaSwap ensures that all relevant trades are routed through the ParaSwapPool to achieve the best rates. ParaSwapPool is an aggregate from professional liquidity investors, accessible using the RFQ (request for quote) system. However, ParaSwap aims to create a more decentralized, accessible alternative in the future.

MultiPath

MultiPath is the pathing protocol designed by ParaSwap. Its functions include discovering multiple “paths” or token exchange routes during a trade. MultiPath can also interact with automated market makers (AMMs) and DeFi lending platforms. With MultiPath, ParaSwap users’ transactions can be routed seamlessly through large DeFi protocols like Compound and Aave

The MultiPath protocol can split transactions across various exchanges and facilitate intermediary tokens to negotiate better rates when required. If there isn’t a direct trading pair when trading and swapping tokens, MultiPath can process the transaction across multiple automated market makers (AMMs), DEXs and DeFi liquidity protocols. Furthermore, Ethereum gas fees and fluctuating price variables are also taken into consideration during the trade. MultiPath can also facilitate indirect trading routes with two or more hops between protocols for a smoother user experience.

ParaSwap Fees

A certain amount of computational power is necessary to process transaction requests on the Ethereum blockchain. This power is referred to as “gas.” Gas fees can fluctuate considerably, depending on transaction size (not value) and the amount of activity happening on the network. ParaSwap doesn’t charge any fees for its services. Instead, the services integrated with ParaSwap take a commission for all swaps facilitated, and ParaSwap gets 15% of this commission. In addition, ParaSwap receives a small commission through a Revenue Sharing Contract for decentralized applications (DApps) that use the ParaSwap API

ParaSwap optimizes gas fees when users conduct a trade. Although it’s free to use ParaSwap, users still have to pay the Ethereum network fee, as each ParaSwap.io trade is settled on Ethereum. When gas costs are low, ParaSwap also enables tokenization in the form of GST2 GasTokens. These tokens are then used with ParaSwap trades to reduce and optimize gas fees on Ethereum during periods of high network activity.

Hedging Against Positive Slippage

Cryptocurrencies operate in a free market where asset prices can be volatile. While one is waiting for their transaction to be confirmed, other transactions on the network may push the price of a token up or down. This phenomenon is known as “slippage.” ParaSwap has implemented various features to hedge against slippage. These features include a “minimum received” amount, as well as securing token prices for a set period using the ParaSwapPool.

For ParaSwap v3 smart contracts, the fee model around slippage has been slightly adjusted. In cases of positive slippage, users may receive more tokens than usual for the price paid. However, applications aren’t obligated to give users a positive slippage amount, with some services retaining all the profit earned.

As a community-oriented project, ParaSwap’s contracts are set to put 50% of the positive slippage back into growing the platform, with the other half going back to its users. As an example, when trading ETH with DAI, this arrangement means the user might receive a few more DAI tokens than originally declared.

PSP Tokenomics

Of the total supply of 2 billion PSP tokens, 7.5% have been airdropped, implying that 150 million PSP were in the initial circulating supply that was distributed to early users.

The remaining tokens are divided among ParaSwap’s core team (17.6%), pre-seed investors and advisors (2.4%), seed investors (14%), future team members (5%), reserves (10%), and the ecosystem (51%).

Source: The Block

At the time of this writing, the price of ParaSwap is $0.77, with a 24-hour trading volume of approximately $7 million. PSP’s CoinMarketCap ranking is #616, with a live market cap of roughly $56 million, a circulating supply of about 73 billion PSP coins and a maximum supply of 2 billion.

Source: CoinMarketCap

Pros and Cons of ParaSwap

By splitting swap orders between different DEXs, ParaSwap is able to provide competitive rates for any swap. Simply select the two cryptocurrencies involved in the trade, and ParaSwap will figure out the rest. In short, ParaSwap optimizes the swap for you by offering the best routing order. It also issues warnings if your desired transaction is at risk of price slippage or failure.

The gas price recommended by ParaSwap is calculated to be optimal at the time of trading. However, the user ultimately has full control and discretion over the gas fee while trading. This user discretion may seem convenient for the user, but a low gas fee has very real repercussions. If the gas fee selected by the user is too low, miners will never pick the transaction for verification and confirmation.

Since ParaSwap is a decentralized exchange/service, you don’t need to create an account on ParaSwap itself. As long as you have an Ethereum wallet, you can use ParaSwap to conduct peer-to-peer swaps anywhere in the world. Their DEX platform ensures that you don’t need anyone to execute the trade for you. Each person keeps their own crypto secure with a private key and has complete control over their assets.

Having ownership of the security key can be empowering. However, this also means that full responsibility falls on the user. When users enter their private keys on a smartphone or computer, their accounts are at risk of being hacked, especially without proper security in place.

Another downside to using an exchange like ParaSwap is that it doesn’t allow you to purchase cryptocurrencies directly. Furthermore, ParaSwap only provides the option to trade crypto assets; you can’t buy crypto with fiat currency such as euros or U.S. dollars.

Buying PSP Tokens

ParaSwap’s token, PSP, cannot be bought directly with fiat currency. However, you can purchase USDT tokens with fiat money and exchange them for PSP coins. Here are four simple steps to acquire PSP through an exchange:

Step One: First, create an account on an exchange like Bybit. You generally need to fill out basic details, such as your name, phone number, email ID, and address of residence.

Step Two: If you don’t possess USDT, you’ll have to buy USDT tokens via bank transfer, debit card or credit card.

Step Three: You can then complete your transaction at a price of your choice using a limit order. Simply enter your order price in USDT and the quantity of PSP you wish to acquire. If the price reaches your specified amount, your order will be processed, and the PSP tokens will be reflected in your account.

Source: Bybit Exchange

Step Four: The final step is to set up a secure wallet (preferably a hardware wallet) to safely store your PSP tokens.

Once you have your PSP tokens, you can conduct various trades on different exchanges.

Is ParaSwap (PSP) a Good Investment?

The price of ParaSwap is predicted to reach $0.95 by the end of 2021, and possibly over $4.00 within the next five years. According to experts and business analysts, ParaSwap may hit $28.33 by 2030.

As coin scarcity tends to lead to higher prices, the value of ParaSwap is expected to continue increasing. However, users are advised to examine their personal investment goals and monitor the performance of the PSP token closely before investing in it.

Closing Thoughts

DeFi users are sure to appreciate what ParaSwap has to offer. With ParaSwap, users can save on gas fees by aggregating their exchanges into a single transaction. ParaSwap allows large Ethereum transfers to take place, with the most efficient swaps involving 15 or more ETH. Although Ethereum is the main token exchanged on ParaSwap, the exchange also supports other crypto assets and enables transfers with several DeFi protocols.

The ParaSwap platform is designed for seamless integration into developers’ DApps. By implementing efficient protocols for both developers and traders, ParaSwap has secured a prime position in the DeFi marketplace. Overall, we’re excited to see what the future holds for PSP.

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