Recently, THORChain, the decentralized cross-chain transaction protocol, unveiled an innovative feature known as “Streaming Swaps.” This groundbreaking addition aims to optimize price execution for larger transactions by dividing them into smaller sub-swaps executed over a specific timeframe. The primary goal is to cater to patient swappers and enhance capital efficiency while maintaining the Total Value Locked (TVL) of the pools.
THORChain Launches Swaps, Enhancing Price Execution Efficiency
Streaming Swaps offer users two choices: time-optimized or price-optimized swaps. The functionality operates on a Time-Weighted Average Price (TWAP) trade model, with a 24-hour limitation to ensure the economic security of Layer 1 assets like BTC and ETH.
The core concept behind Streaming Swaps lies in accessing the time domain during swapping. Unlike traditional swaps, which require immediate liquidity fulfillment, streaming swaps allow liquidity requirements to be spread across multiple moments in time. This enables arbitrage opportunities to correct prices during the swap, resulting in significantly better price execution for users.
THORChain accomplishes this through its unique characteristic as a live state machine capable of persisting in the state across time and acting upon it. This sets it apart from EVM ledgers, where state changes are confined to single blocks, necessitating external input for persistence across multiple blocks.
The feature also permits users to adjust sub-swaps using two additional parameters:
- Swap Interval: Users can specify the time interval between sub-swaps, represented in THORChain blocks (approximately 6 seconds). Allowing ample time for arbitrage between sub-swaps ensures constant pool re-balancing to meet capital demands during the swap.
- Swap Count: Users can determine the number of sub-swaps into which the original swap amount should be divided. Higher sub-swap counts lead to smaller swap sizes for each leg, minimizing slippage and ultimately benefiting the user.
Furthermore, THORChain sets a minimum slippage fee of 5 basis points (bps) for streaming swaps, safeguarding against asset price manipulation. The price limit functionality also applies to streaming swaps, preventing the execution of any sub-swap falling below the specified price limit.
The introduction of streaming swaps is expected to have a positive impact on the THORChain ecosystem, making it more appealing for executing larger trades on-chain. Previously, slip-based fees posed challenges for traders conducting substantial transactions, pushing them towards centralized exchanges with lower fees. With streaming swaps, large swappers can now access liquidity fees as low as 5 bps, fostering a more enticing environment for on-chain traders.
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