Decentralized exchanges (DEXs) like Uniswap and Curve have largely mastered the art of non-custodial trading. These trading protocols automatically link trades by sifting funds through user-funded liquidity pools. But they lack efficiency.
The problem is that the $18 billion DEX market is split across nearly a thousand exchanges, each containing thousands of liquidity pools that impose their own rules and prices on traders.
While DEX aggregation protocols like 1inch and ParaSwap promise to calculate the most efficient trades on behalf of investors, the DEX aggregation market is also fragmented into dozens of protocols, each with its own homebrew method of getting users the best prices on trades offer.
To make choosing the right aggregator easier, DefiLlama has developed LlamaSwap, a free protocol that finds the best deal for a crypto trade among the top 10 DEX aggregators.
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LlamaSwap uses popular exchange aggregators and finds the deal that saves the trader the most money. In a snap, LlamaSwap consolidates this fragmented market of nearly a thousand protocols into a single app.
This is how LlamaSwap works
LlamaSwap is the latest stop in a series of DeFi transactions that help traders buy and sell tokens while enjoying the lowest fees and most stable prices.
At the bottom of the stack are DEXs. These exchange protocols do not hold funds in a central order book like Coinbase or Binance, but rather facilitate trading through huge reserves of tokens, called liquidity pools. Other users park their money in these pools to boost the exchange and earn a portion of the transaction fees.
DEXs move funds in and out of these pools to transact trades. Let's say you want to trade some Ether for Circle's USDC stablecoin. The exchange adds your Ether to a liquidity pool containing both tokens and then credits you USDC from the pool. To offset the token imbalance, the liquidity pool makes ETH slightly cheaper to balance the value of Ether and USDC in the pool.
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For smaller tokens that attract less liquidity, prices may vary between liquidity pools. Therefore, it is often cheaper to route trades across multiple liquidity pools. Consequently, a DEX short of USDC could first convert funds from other liquidity pools or withdraw funds from other protocols entirely.
Routing across multiple pools and protocols can quickly become complicated, and some DEXs are more efficient than others. Of course, given the breadth of the market, it is impossible to choose the cheapest way to exchange coins alone. Even if you tried, the price of the token you want to buy may have already fallen by the time you do it. High transaction fees can make false moves even more expensive.
This is where DEX aggregators come into play. DEX aggregators compile the best prices from hundreds of decentralized exchanges, similar to how Expedia compiles a list of the cheapest flights and hotels. Some DEX aggregators also take so-called slippage into account. This is the price difference between the time you submit a transaction and the time the transaction is confirmed on the blockchain.
But even DEX aggregators differ in their efficiency. This is where LlamaSwap comes into play. LlamaSwap evaluates the best prices across 20 blockchains from 10 popular DEX aggregators to find out which is most efficient for a particular trade.
It does this by assigning DEX aggregators their offering and gas fees – how much you have to pay to the blockchain network to get your transaction through the door.
How to use LlamaSwap
How to use LlamaSwap:
- Go to DefiLlama Swap from the sidebar on the DefiLlama landing page.
- Connect your cryptocurrency wallet to LlamaSwap by clicking the “Connect Wallet” button at the top right of the screen.
- Select the tokens you want to swap from the drop-down menus. So to exchange USDC to ETH, select “USDC” in the “You Sell” menu and ETH in the “You Buy” menu.
- Enter the amount you would like to exchange. The bottom field automatically calculates what you will receive in the target token.
- Select your slippage tolerance or enter a custom amount. Slippage is the difference between the expected price of a trade and the actual price at which it is executed. Slippage tolerance is influenced by market volatility and liquidity conditions.
- Select your trade from the list of aggregators on the right side of the screen. If everything looks good, click “Approve” on your preferred trade route.
- Click “Swap via xxxx”, where “xxxx” indicates the selected aggregator.
- Check the transaction details in your crypto wallet and execute the trade if everything matches your expectations.
A few notes:
First: Airdrop eligibility. LlamaSwap users are still eligible for airdrops from DEX aggregators, similar to an airdrop assigned to swaps executed directly through a DEX aggregator’s app. Historically, DEXs have passed airdrops to aggregators, who in turn have the ability to distribute them.
Second: privacy. LlamaSwap gives users the ability to hide their IP address by redirecting requests through DefiLlama's servers. This prevents aggregators from linking your wallet to your IP address. DefiLlama does not store IP address data.
And DeFi trading becomes a lot cheaper.
Next Steps
- Compare offers for large and small swaps of different cryptocurrencies across different blockchains on LlamaSwap.
- Learn about the history of early cryptocurrency exchanges and the challenges their creators faced.
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