Bibo 3.0: Token Swaps Explained
Bibo 3.0 will introduce a new trading model for users to buy and sell cryptocurrencies: token swaps. This way we greatly improve user experience especially by solving the problem of low liquidity and large buy/sell gaps. Additionally, swaps will make trading much easier and more convenient, allowing even complete newcomers to buy and sell their crypto with ease. But let’s start with the basics first: what is a token swap?
A “token swap” means the direct exchange of a certain amount of one cryptocurrency token for another between users facilitated by a special exchange service. In contrast to the traditional exchange trading model, there are no orderbooks to navigate. Instead, token swaps use a liquidity pool structure to determine buy/sell prices. This is especially advantageous for markets with rather low liquidity, because all existing liquidity is pooled together instead of being spread out over many different orders. Moreover, this structure also allows users to act as liquidity providers and earn passive income. But let’s first explain and compare the two models.
Orderbook vs. token swap model
Orderbook exchanges rely on buy and sell orders around a given token. Buy orders are called bids, and sell orders are called asks. To this end, these exchanges list bid orders and ask orders across every price point, with the “top of the book” marking whatever the lowest ask and the highest bid prices are at a particular time. The cons of orderbook marketplaces, though, is that they don’t work well for illiquid markets, and they can be particularly prone to market manipulation and front-running. Most of the traditional centralized exchanges such as Binance, Huobi or OKex apply the orderbook model.
On the flip side, token swap exchanges like Uniswap rely on what’s called “algorithmic agents,” or “money robots” (also called automated market maker, AMM), rather than order books. Key to this model are the “liquidity pools”, in which users supply assets that a finely-tuned algorithm uses to make markets (= determine prices & slippage). Every AMM has its own customized algorithm with its own pros and cons. Ultimately, the algorithm’s unique formula is used to determine prices for users rather than a list of bid orders and ask orders. This kind of structure is not only more suitable for low-liquidity markets, it is also significantly more simple to deal with for newcomers.
Liquidity pools
Token swaps do not use an order book to estimate the asset value. In traditional crypto exchanges, like Binance, a price is based on supply and demand, where the highest price is the one for which someone is willing to buy, and the lowest price is the one for which someone is willing to sell. In the image below, we see that the highest BTC bid price is $9301.36, and the lowest bid price was $9301.37.
Instead, the token swap model pools two tokens (e.g. ETH and USDC) into one pool. When exchanging USDC to ETH, the user’s USDC would be sent to the pool while ETH leaves the pool. As more USDC and less ETH is now in the pool, the price of ETH would consequently go up. This way the price is automatically adjusted, while the connection with outside markets is kept via arbitrage (e.g. if the price of ETH gets too high, then people would buy cheaper ETH on other exchanges to send it to the pool, thereby lowering the price). This, in a simplified way, is how token swaps work.
Bibo 3.0 token swaps
Bibo 3.0 token swaps will come with a few twists and enhancements over the traditional token swap model, which is so far mainly applied on decentralized exchanges. As a centralized gateway, swaps on Bibo won’t suffer from inconveniences such as occasionally high fees and also long waiting times. To combine the best of both worlds, Bibo Exchange token swaps will be simple, convenient, fast and cheap at the same time!
Moreover, swaps on Bibo will have much better liquidity, as all the liquidity of a pair is pooled together into one big liquidity pool. Users won’t have to put orders, just choose the amount they would like to exchange and then the swap will be executed instantly. The token swap model also brings with it the additional possibility for users to act as liquidity providers on certain pairs. This way users can earn additional passive income by putting their funds into the pool, receiving a profit share on every trade. Bibo 3.0, the future is here!
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