In the vast world of Web3, numerous dApps and platforms offer token and coin exchanges, leaving users with the dilemma of choosing the right one. ParaSwap steps in to alleviate this challenge by offering an aggregator crypto platform that makes the swapping process faster, more convenient, and more cost-effective for users.
Let’s review mechanisms enabling this DEX aggregator functionality and how they benefit both regular cryptocurrency traders and Web3 developers.
Tl; DR:
ParaSwap is a DeFi aggregator that unites the liquidity of EVM-based decentralized exchanges. While maintaining a fee-free experience for traders, it offers an interface for finding optimal market offers across the majority of DEXs and finalizing trades effortlessly. For DeFi applications, the service provides an API that developers can integrate into their projects to access its liquidity and trading features.
What is ParaSwap?
ParaSwap is an exchange aggregator tool providing access to liquidity from multiple decentralized trading platfroms functioning on top EVM chains.
The protocol continuously compares the prices and fees offered by the different DEXs it is connected to and analyzes the liquidity depth to determine the best available price for the desired token swap.
Since its launch in 2019, the service has processed over $70 billion in trading volume.
With a $100m volume and around 9k active users daily, it is currently the fourth biggest crypto aggregator, according to Dune analytics.
Mounir Benchemled, the founder of the project, emphasizes that the platform serves not only avid traders seeking the best market offers and seamless trade execution but also focuses on providing a comprehensive API to offer enhanced trading capabilities to other DeFi applications.
Supported Tokens and Platforms
ParaSwap supports the swapping of native assets, ERC-20, and BEP-20 tokens across a total of nine blockchains:
- Ethereum;
- BNB Smart Chain (BSC);
- Avalanche;
- Polygon;
- Polygon zkEVM;
- Fantom;
- Arbitrum;
- Optimism;
- Base network.
Notably, by March 2024, a significant share of users engage in trading activities on the Polygon network, according to service statistics.
Among the listed platforms there are lending platforms, yield aggregators, liquidity pools, other dex aggregators, and multiple well-known DEXs, including Uniswap, KyberSwap, PancakeSwap, SushiSwap, and ApeSwap.
How Does ParaSwap Work?
Paraswap.io offers functionalities that cater to different trading needs:
- Cryptocurrency swaps;
- Swaps resulting in transfer to another wallet;
- Limit order trades;
- On-chain OTC trading;
- Staking & farming.
To understand how it differs from familiar decentralized exchanges (e.g. ParaSwap vs Uniswap), let’s review what makes the aggregator tick behind the scenes.
Discovering best deals
The protocol maintains real-time connections to full blockchain nodes to stay synchronized with supported networks and source up-to-date pricing data.
By comparing prices, the aggregator can calculate the best possible token swap rate for a given trade, which may be routed to one market maker or a combination of market makers and DEXs.
Multi-path routing
While trading directly with a single DEX does not necessarily yield the best price for users, the aggregator explores alternative paths for executing trades. This involves taking orders through multiple cryptocurrencies or trading pairs before reaching the final destination token.
With that, users can get more favorable trading outcomes with rates that can potentially beat the market price.
Order execution
When a user initiates a trade on the website, the execution is facilitated by thoroughly audited smart contracts deployed on Ethereum. These contracts are programmed to ensure that users receive the expected outcome of their trades within a specified slippage tolerance.
In March 2024, the team launched version 6 of the protocol, removing the double contract design aimed to reduce gas overhead by going through several smart contracts.
However, in response to the security concerns, the service currently continues using the v5 contract deemed to be more tested and stable.
Integration with Wallets and Exchanges
The aggregator provides an Application Programming Interface (API) that allows developers of other DeFi applications to integrate trading functionality into their own platforms.
For example, wallet applications such as MetaMask, Ledger, and Argent already integrate the APIs to provide users with the ability to swap cryptocurrencies directly from their wallets.
Aave, DeBank, and many other well-known protocols in DeFi also rely on the ParaSwap exchange functionality seamlessly for an end-user.
API example
Let's say we need to swap 1 ETH for USDC. To do that, we can make a query to the ‘/prices’ endpoint with the appropriate parameters:
curl --location --request GET 'https://apiv5.paraswap.io/prices/?srcToken=0xEeeeeEeeeEeEeeEeEeEeeEEEeeeeEeeeeeeeEEeE&destToken=0xA0b86991c6218b36c1d19D4a2e9Eb0cE3606eB48&amount=1000000000000000000&srcDecimals=18&destDecimals=6&side=SELL&network=1'
Response Snippet
Next, a transaction can be created to directly interact with the platform’s smart contracts via the "/transactions" endpoint.
Transaction Fees and Costs
ParaSwap offers users a fee-free experience, ensuring that there are no charges associated with using the service. Traders should only be aware of gas fees paid in ETH for their transactions.
Developers and platforms leveraging ParaSwap APIs have the option to impose a fee for users utilizing these services. In this case, the team receives 15% of the total fees charged by the integrating platform.
Additionally, some unique aspects of the platform’s fee structure are also worth mentioning:
- Positive Slippage Fee: The aggregator charges a fee equal to 50% of any positive slippage amount encountered during transactions, applicable only when users benefit from unexpected price improvement;
- Gas Refund: ParaSwap token, introduced in November 2021, drives the platform's incentive system. Initially, Paraswap airdrop distributed 150m tokens to platform users. At present, holders who stake PSP tokens can receive up to 95% gas refunds for their swaps, determined by staked amounts.
So, while the service doesn't charge fees directly to its users, it does introduce a fee mechanism to earns some revenue.
Benefits of Using ParaSwap
To sum it all up, let’s list the advantages the crypto aggregator offers to its users.
- Users retain control of assets: As a decentralized protocol, ParaSwap doesn't hold custody of users' assets. Traders are only required to connect their non-custodial wallets to the website to initiate trades directly with available DeFi protocols;
- Streamlined user experience: Users are no longer required to manually compare rates and liquidity across different exchanges. This reduces the overall time spent on executing swaps, making the process more convenient and efficient;
- Increased liquidity pool: By consolidating liquidity from various sources, the aggregator provides crypto holders with access to a deeper and more diverse liquidity pool, ensuring that users have a better chance of executing their trades without experiencing significant slippage;
- Access to the most competitive rates: By automatically tracking multiple exchanges and deploying multipath swaps, the service ensures that users get better rates when swapping cryptocurrencies.
In general, ParaSwap is automating the complexities of decentralized trading, converting the whole process of evaluating supplies and rates across numerous popular decentralized exchanges into a single click for a user.
On a Final Note
ParaSwap DEX aggregator is a great tool for traders challenged with the task of finding the best deals in the vast and growing DeFi ecosystem. Additionally, developers can freely use the protocol functionalities to optimize cryptocurrency swaps and maximize savings for their application users.
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