Because Web3’s ecosystem is so fragmented, with multiple blockchains operating as independent networks, the need for safe, rapid and convenient cross-chain swaps has never been more important.
Cross-chain swaps are mechanisms through which Web3 users can trade tokens issued on one blockchain for assets hosted on a second, unrelated network with minimal friction. Although cross-chain swap functionality has been available on centralized exchange platforms for years already, it’s becoming more accessible with the rise of aggregator services such as RocketX.
Traditionally, the process of swapping tokens across chains using a CEX has always been slow and cumbersome. Users must transfer their tokens from their wallet to the exchange, swap them directly or often indirectly using a third-party token such as USDC or Bitcoin, then transfer the swapped tokens back to their own wallet, which might be different if the original wallet doesn’t support the second blockchain.
Aggravating this hassle is the need to trust the CEX in question, as users must temporarily give up custody of their assets. The issue here is that centralization introduces risk, and although it may seem rather small, we only need to look at the implosion of the FTX exchange to remember how untrustworthy such platforms can be. As such, many DeFi users would prefer to execute cross-chain swaps without relying on an intermediary.
How Do Cross-Chain Swaps Work?
These days, cross-chain swaps can be executed in a number of ways. The majority of existing implementations use what’s known as a cross-chain bridge, which involves wrapping and locking up tokens on the source blockchain, then minting new tokens on the target chain to create 1-to-1 representations of the asset.
Using a cross-chain bridge generally means heading to a decentralized exchange, which will automate much of the process. Users must lock the tokens they wish to swap into a smart contract on the base blockchain, then wrap the tokens on the destination blockchain. Because this process is largely automated, users only have to specify the asset they’d like to swap and the one they wish to receive. It’s a tried and tested approach that has become the industry standard, but it too involves risk, as users need to trust in the security of the underlying bridge. Unfortunately, just like CEX platforms, blockchain bridges are not always secure.
Besides the “lock-and-mint” model that most bridges employ, an alternative that’s becoming more popular is the “burn-and-mint” approach, where the tokens on the source blockchain are burned before being minted on the destination network. There’s also a “lock-and-unlock” model, applicable to assets where native supply exists on both blockchains.
Though different models are used, cross-chain bridges all follow the same framework, with the tokens on the first chain being locked or burned, before the user can receive an equivalent amount of tokens on the target network.
Atomic Swaps
An alternative for performing cross-chain swaps without using a bridge is the so-called “atomic swap”, which involves two parties using time-locked smart contracts.
To illustrate how atomic swaps work, imagine that two individuals, Jim and Bob, are looking to swap one digital asset for another. Jim has ETH and wants to swap it for AVAX, whereas Bob has AVAX and needs to trade it for ETH. In this case, they’re a perfect match. So both parties proceed to lock up the correct amount of tokens in a smart contract on their respective blockchains. Only when both Jim and Bob have locked their tokens up, will the swap be executed. Then, Jim receives the AVAX locked up by Bob, while Bob receives the ETH locked up by Jim.
Atomic swaps are completely decentralized and therefore have a big number of fans, but the trouble is that this model doesn’t scale so well. For one thing, atomic swaps require a sufficient number of counterparties willing to engage in trades involving similar amounts, and the blockchains involved must use the same hashing function for the trade to work. The counterparties must also be willing to wait for an extended period of time for the swap to be processed.
A Simpler, Safer Kind Of Cross-Chain Swap
RocketX is a new kind of protocol that aims to simplify the cross-chain swap as much as possible, providing a user-friendly tool that can facilitate seamless transactions in the blink of an eye.
Unlike traditional bridges, RocketX runs in the background. Its dApp is essentially an aggregator that combines the liquidity of more than 450 centralized and decentralized exchange platforms, and supports more than 200 blockchains, enabling users to trade almost any token at the best possible rate. All of this functionality is bundled into a single UI, and it’s self-custodial too, so there’s no need to trust an intermediary.
Besides using the RocketX dApp, developers have the option to integrate the service into their own dApps using the RocketX API, meaning their users have a way to perform seamless cross-chain swaps without needing to visit another platform.
To perform a cross-chain swap on RocketX, using either the original dApp or one that’s integrated within another, third-party dApp, the process is simple. Simply select the “Cross-chain/Bridge” tab, then choose the source network and source token, or in other words, the token you want to swap. Once that’s done, choose the destination network and token you want to exchange your funds for. Next, enter the amount of tokens you’re looking to swap. As an option, you can also choose to provide a different recipient address if you want the swapped tokens to go into a different wallet.
Hit the confirm button and RocketX will fetch quotes from the 450+ CEXs and DEXs it supports, detailing the price per token and the expected gas fee, along with an estimate of the time it will take to complete the transaction. RocketX will automatically recommend the best option that will enable the user to receive the most tokens in the target asset, however users can still select the exchange of their choice if they desire.
Once chosen, click on “Connect Wallet” and select the desired wallet (the one containing the funds you wish to swap). RocketX will then display the router address where the user must send their funds. From there, simply hit the “Okay” button, then verify it within your wallet to proceed with the transaction. If the transaction isn’t executed immediately, users can check the status by clicking on the “history” tab within the RocketX dApp.
Aggregated Liquidity
Perhaps the single biggest advantage of RocketX is the unique way it aggregates liquidity across every platform it supports. This is beneficial because the growing number of blockchains in DeFi has led to liquidity being trapped within numerous different networks. What’s more, each DEX platform is a walled garden. When liquidity is fragmented in this way, it results in lower efficiency, and traders are unable to perform swaps in the most cost-effective way.
With RocketX, the fragmented liquidity in the DeFi space is aggregated into a single, cross-chain liquidity pool. This means traders can perform swaps at the best possible price. This is a key development that will prove essential to unifying Web3’s growing ecosystem of blockchains and dApps.
Reduced Complexity Paves The Way For Mass Adoption
As we head into 2024 the crypto market is looking increasingly bullish, and there is growing optimism that digital assets are on the way up. But if crypto is to deliver solid, lasting gains, then the user experience must be more streamlined, and that is exactly what RocketX is trying to do. As complexity within the DeFi ecosystem grows, the only way to ensure mass adoption is to simplify the way people interact with different protocols and ensure full interoperability across every blockchain.
RocketX’s approach to interoperability mirrors a large industry effort to eliminate barriers to adoption and encourage more people to participate in DeFi and the larger Web3 ecosystem. It’s an encouraging development that could well play a pivotal role in bringing more users into the decentralized economy.