What is ParaSwap (PSP): A Guide to the DeFi Enabler – CoinCentral

ParaSwap is a multi-chain decentralized exchange (DEX) aggregator on the Ethereum blockchain. ParaSwap is a middle tier that aims to create a better user experience when dealing with different DeFi protocols, ultimately aiming to facilitate the flow of liquidity in decentralized markets.

Basically, ParaSwap aggregates all price and data feeds for major decentralized exchanges to provide users with the best possible price for exchanging cryptocurrency assets. It largely focuses on ERC-20 tokens.

The main purpose behind ParaSwap is to enable fast transactions at the most acceptable price and to be ranked as the most preferred exchange aggregator on the Ethereum blockchain.

The home page of Paraswap

The home page of Paraswap

ParaSwap uses its own PSP token to facilitate its variety of functions.

This guide to ParaSwap explores why investors may prefer to use ParaSwap as their preferred interface to the decentralized financial world.

ParaSwap Features

Typically, DEX aggregators don’t usually provide the liquidity for token swaps themselves – they simply connect users with the DeFi protocol that does.

by his ParaSwapPoolhowever, users have access to a confidential pool of market makers as their own deconcentrated source of economic liquidity. The ParaSwapPool is an integrated liquidity pool funded by private investors with the aim of providing the most competitive rates. Instead of the DeFi protocol receiving the liquidity, ParaSwap essentially runs it with its own pool.

ParaSwap also uses a feature called MultiPath, which is a path mechanism that breaks tractions across various exchanges. It is involved in tracing multiple paths of related token sales, intermediate tokens and more.

Whenever a transaction takes place in the Ethereum blockchain, a certain portion of the fees (gas fees) is required to process the proposal. Gas costs generally vary with network activity and transaction size. ParaSwap itself does not charge users for token swaps, but users still have to pay the Ethereum fee. However, ParaSwap does charge a commission on each facilitated exchange. Decentralized apps integrated with ParaSwap also charge a small commission through a Revenue Sharing contract.

When gas prices are low, ParaSwap facilitates gas price tokenization as GST2 Gas Coins. At times of extreme network traffic, the GST2 gas tokens can be used to reduce the much higher overloaded gas rates.

PSP, the original token of ParaSwap, is used to facilitate the decentralization of the protocol. Out of a total of 2 million PSP Tokens, about 7.5% is dropped. About 150 million tokens are present in the primary circulating supply.

Price impact and ParaSwap

Price impact is the observed fluctuation between the initial tokens traded upon entry and the total tokens received at the destination. Measuring price impact is much easier when trading takes place with high liquidity tokens and fewer liquidity tokens.

The impact on price increases with the size of trade and ParaSwap aims to keep it under control.

Since cryptocurrencies operate in a free market where prices fluctuate significantly, slippage occurs. The term “slippage” means the difference between the forecast amount and the amount obtained. Slippage occurs when the tractions push fees to the bottom after submitting the first trade.

Trading on ParaSwap

Given the above considerations, the trading mechanism on ParaSwap is as follows:

  • Step 1: The user chooses the number of tokens they want to trade
  • Step 2: ParaSwap identifies the best trading price on any decentralized exchange.
  • Step 3: ParaSwap gives users explicit information about every possible trade route.
  • Step 4: User can select the most suitable path and initiate a transaction
  • Step 5: After the trade, the swap is executed and the traders obtain corresponding tokens.

Final thoughts: ParaSwap and its role in DeFi

Due to its routing mechanisms, ParaSwap can be a good choice for DeFi users who want to get the best possible price for a token swap.

The current DeFi experience leaves a lot to be desired, but middleware and intermediary products explore ways to iterate and innovate for the benefit of the end customer. With middleware products like ParaSwap coming to market, the case for DeFi and user adoption is quite optimistic.

For more information, see the ParaSwap site and further documentation.

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