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Discover how DEXs on ICP — Sonic, ICPSwap, and Helix Markets, usher in a new era of trustless, secure, and bridgeless cross-chain swaps
As the web3 landscape continues to expand with fresh narratives, matured financial products, and increased user adoption, most crypto markets remain isolated within their native networks. This leads to siloed environments that restrict the free flow of data and value from one blockchain to another.
Swapping Bitcoin and Ethereum
ETH/BTC is a leading non-stablecoin trading pair with daily volumes of over $105M. Swapping Bitcoin for Ether also opens up a range of different possibilities. It enables leveraging Bitcoin’s market and its community across the DeFi sector, sparking further innovation. On the other hand, converting ETH to BTC allows users to capitalize on Bitcoin’s robustness and its reputation as a ‘store of value’.
The State of Cross-Chain Swaps
One of the ways to swap assets across two such major blockchains is to rely on centralized exchanges (CEXs). These exchanges act as custodians for users to transact with their digital assets.
Governed by a single entity, CEXs are in complete control of your funds and your sensitive information. Moreover, these exchanges are coupled with risks such as vulnerability to hacks and scams. In the past, many crypto exchanges have been compromised and indulged in illicit activities, leading to the loss of billions of dollars in user funds.
Alternative to CEXs, decentralized exchanges (DEXs) offer a non-custodial approach for users to swap BTC to ETH and vice versa. Since the assets are transacted across different chains, each governed by its own consensus protocol, they cannot be natively transacted.
To address this, DEXs use blockchain bridges to facilitate the transfer of assets from one chain to another. However, cross-chain bridges are vulnerable to hacks and scams. For instance, hackers exploited a bug in the Nomad Bridge in 2022, draining nearly $200 million from the bridge’s reserves.
Secondly, DEXs are also riddled with challenges, such as high transaction costs due to network congestion. For instance, swapping ETH for BTC during high network congestion can cost as much as $100 on DEXs.
ICP’s Trustless Multi-Chain Tech Stack Unlocks Bridgeless Cross-Chain Swaps
ICP’s unique architecture is designed to foster a multi-chain environment allowing smart contracts to effortlessly communicate across multiple chains. Some of the features that enable a trustless multi-chain innovation include:
Bridgeless Architecture
Using advanced cryptography, ICP enables direct integration with the Bitcoin and Ethereum networks without the need for cross-chain bridges. Chain-key technology enables smart contracts on ICP to directly conduct transactions on the Bitcoin and Ethereum blockchains without the interference of intermediaries, custodians, or bridges.
Non-Custodial Cross-Chain Swaps
Chain Key Bitcoin (ckBTC) and Chain Key Ether (ckETH) are native tokens on ICP that are cryptographically secured 1:1 by real BTC and ETH, respectively. Within this infrastructure, it becomes possible for users to swap tokens across different blockchains in a non-custodial process.
Building Foundation with Chain-Key Technology
The overall design encompassing chain key ECDSA and threshold cryptography makes it possible to enable the trading of non-native digital assets in a completely decentralized manner. Essentially, it performs the same functions carried out by CEXs and DEXs but without any third-party custodian gaining exchange of your funds or any cross-chain bridges.
ICP Brings Interoperability to Swapping
The blockchain ecosystem is in a state of evolution. Interoperability will no longer be an added feature, but rather a necessary innovation. The architecture of Internet Computer Protocol (ICP) brings interoperability to asset swapping, revolutionizing how users exchange assets across different blockchains. The initiatives built on ICP will push the boundaries of what’s possible to ultimately contribute to the broader decentralization movement and shape the future of the blockchain ecosystem.
How to Convert to ckBTC and ckETH
Before going into swapping, let’s look at the process of converting BTC or ETH into their equivalent ck tokens. When a user wants to convert ETH to ckETH (or BTC to ckBTC), here’s what happens:
- The user initiates the conversion process by sending their ETH to an Ethereum smart contract controlled by an ICP smart contract, which then observes payment events and mints ckETH for the sender.
- The ckETH smart contract receives the ETH and mints ckETH at a 1:1 ratio. This smart contract is controlled by the NNS DAO that governs the Internet Computer Protocol.
- The equivalent value of the user’s ETH, now represented as ckETH is sent back to the user, which he can now leverage to access the web3 ecosystem within ICP.
The code for converting native tokens to ck tokens, and vice versa, is open-sourced and most ICP wallets provide a user interface for the conversion, including the NNS. ICP relies on chain-key technology to facilitate these conversions seamlessly while ensuring the security and reliability of the process.
Benefits of Swapping ckBTC/ckETH on ICP DEXs
Swapping between assets is powered by decentralized exchanges like ICPSwap, Sonic, and Helix Markets. These decentralized applications are the building blocks for enabling a trustless multichain world.
Below are some of the features that users can take advantage of when engaging with cross-chain swaps on decentralized exchanges on ICP:
Gas Fees
The decentralized exchanges that offer direct swaps between Bitcoin and Ethereum typically charge substantial fees due to high network activity on both blockchains. Unlike other platforms, the ICP ecosystem operates on a Reverse Gas Model. Instead of users paying the fees, the ICP ecosystem is designed such that the gas fees are covered by developers.
Helix Markets and Sonic, DEXs powered by ICP, facilitate transactions with no gas fees and are lightning fast with 1-second transaction finality. This is particularly advantageous for smaller transactions, as it eliminates the burden of high gas fees that are common on other networks.
User-Friendly Interface
Decentralized exchanges on ICP bring a unique user experience for swapping assets based on different chains. Helix Markets offers a simple UI and UX for users to interact with other decentralized exchanges and smart contracts on other chains.
ICPSwap has deployed front-end functionalities within its platform. Users can directly interact with chain-key technology and convert their BTC into ckBTC. Sonic provides a seamless swap interface to exchange ckBTC for ckETH and vice versa.
Non-Custodial
Aligning with ICP’s decentralization principle, these decentralized exchanges offer a non-custodial approach to swapping ckBTC/ckETH. On Sonic, the swaps of tokens are conducted between users and smart contracts, all without relying on third-party infrastructure.
Helix Markets canisters harness the power of chain-key technology to establish native communication and create trading pairs not only with BTC and ETH, but also with any ERC-20 assets.
Access DeFi Ecosystem
On ICPSwap and Sonic, users can access a wide range of DeFi activities using their ck tokens. Apart from secure transfers, users can also trade, stake, and participate in liquidity pools. In addition, users have the option to create trading pairs involving ckBTC and ckETH, which can help them earn fees.
These platforms also offer the ability to engage in staking pools such as ckBTC/ckETH to earn fees without incurring any transaction fees due to the reverse gas model. This contributes to a cost-effective and user-centric experience within the platform, aligning with the principles of the ICP ecosystem.
DEXs built on ICP can leverage its unique architecture and be a part of its efforts to enable a trustless multi-chain world. These DEXs lay the pathway toward accessing an integrated blockchain ecosystem by facilitating a secure and user-optimized interface for engaging with the DeFi ecosystem. They represent an inclusive and accessible decentralized future.
Resources:
https://internetcomputer.org/multichain
https://internetcomputer.org/ethereum-integration
https://internetcomputer.org/defi
Unlocking BTC/ETH Cross-Chain Swaps With DEXs on ICP was originally published in The Internet Computer Review on Medium, where people are continuing the conversation by highlighting and responding to this story.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.