Traditional money exchange is a really simple and obvious concept when looking at the history of money. For example, you visit Europe, you land at the airport and exchange your Dollars for Euros because Europe does not use Dollars in their domestic market. This seems really easy in traditional finance because of the universal acceptance of Paper Money.

The acceptance and ease of exchanging paper money are feasible because of a central authority and world bank. They accept and administer almost all of paper currency/FIAT currency in the world. This results in FIAT being vast and popular amongst the masses.

A blockchain bridge allows the secure exchange of cryptocurrencies having different networks or protocols without the need for a third-party exchange.

What makes a cryptocurrency distinct in it's features and usecases?

A cryptocurrency is a digital currency powered by a database or distributed ledger called a blockchain. Each blockchain is developed on a mechanism, set of rules, or protocols we call a consensus. This consensus defines the features and protocols of a network or blockchain and its interaction with transactions.

These cryptocurrencies have different networks to run their own smart contracts, tokens, or subsets. The most overblown networks today are Bitcoin and Ethereum. These two cryptocurrencies have an entirely different approach towards their networks.

Bitcoin does not have any smart contracts capabilities, there are no other cryptocurrencies/tokens running on the Bitcoin network/blockchain. The coins derived from the bitcoin codebase are not related to bitcoin but somewhat use bitcoin's p2p mechanism or other libp2p implementations.

Whereas Ethereum has a huge list of smart contracts and decentralized applications on its network. This is because of smart contract capabilities and constant development and extension into entirely different ecosystems such as Binance Smart Chain, Matic, Cardano, etc. Ethereum was the first blockchain to introduce smart contracts.

These two networks can not be connected together for the interchange of data hence we need a blockchain bridge to connect two or more networks together while being completely trustless.

Contextual Difference between Blockchain Protocols?

The tokens built on Ethereum's network are called smart contracts. These contracts will have the same address as an Ethereum address starting with 0x. They can have different use cases and are classified into a predefined set of tokens such as ERC-20, ERC-721, etc.

These smart contracts can run on the Ethereum network. These smart contracts or tokens can be treated as a cryptocurrency such as USDC which is the crypto version of the US dollar. USDC is an ethereum token always equivalent to one US dollar. To send/receive USDC the network will charge Ether in fee for using its network.

Another Popular Network with smart contract capabilities is Polygon Network. Polygon network can also have pegged tokens or its own version of another cryptocurrency but to conduct any transaction it will use MATIC in transaction fee, making MATIC the primary cryptocurrency of the network.

The Role of Ethereum Network in the need for Blockchain Bridge?

Ethereum is the most complex network as of today. The introduction of smart contracts and network pegged tokens has increased the network traffic eventually reducing the speed and increasing the transaction fees for transactions. Here are a few reasons why bridges are needed while keeping Ethereum in context.

Native Tokens

The dominance of the Ethereum network has somewhat forced most of the cryptocurrency brokers and exchanges to sell Ethereum versions of a cryptocurrency instead of the native version. These versions of another cryptocurrency are called pegged tokens. Every cryptocurrency has an ERC-20 version of it running on the Ethereum Network.

For example, if you buy Polygon from Coinbase, it does not provide you native polygon token but instead an ERC-20/smart contract version of Polygon having an Ethereum address, running on the Ethereum network.

Transaction fee and Speed

The network traffic has made Ethereum a lot slower and a lot expensive compared to other networks. The biggest competitor of Ethereum is Solano which can perform more than 10x the transactions at less than 100x cheaper rates.

Average Transaction Speed Data by Statist

The transaction speeds of Ethereum are currently lower than 48 other cryptocurrencies or networks. This makes Ethereum a really slow network compare to Solano or Polygon.

The average transaction fee of Ethereum is $44 according to BitInfoCharts (Taking an Average of the last 2 years). The prices rose from less than a dollar to $52 as of January 2022 for the last 2 years. This makes Ethereum the most expensive network as of today despite a surge in the market value of Ethereum.

Progression

The biggest drawback of the Ethereum network is scalability issues. Bitcoin brought peer-to-peer transactions to the table while maintaining security and keeping a public codebase. This made Bitcoin revolutionary as it served the basic purpose of a decentralized currency.

blockchain bridge
The benefit of a Blockchain Bridge

Cryptocurrencies are built to access for all, without any bounds or restrictions. Bridges will allow Ethereum to scale between networks, solve some security issues whilst introducing new security issues, and connect different blockchains together as a whole to tackle traditional finance and centralized money.

How does a Bridge work?

There are 2 different designs of bridges. These classifications can be made on centralized and decentralized characteristics.

Liquidity Pools

The easiest version of a network bridge is a liquidity pool. These liquidity pools are backed by institutions or private investors that lend different cryptocurrencies in order to earn fees. These cryptocurrencies are pooled together and spent/exchanged as ordered by a market maker.

Smart Contracts

A bit more complex but a decentralized method of network bridge is via smart contract. In this method, a pegged token of another cryptocurrency is developed on the network in exchange for the native coin.

This pegged token will have the same price as the native asset but will not have the same characteristics as the native asset. This smart contract method is mostly used for coins that don't have smart contract capabilities.

For example, renBTC is a token that allows you to hold an Ethereum version of Bitcoin with the same price. This version of Bitcoin can be used within the Ethereum network using an Ethereum address.

Summary

A blockchain bridge does not imply a specific method or protocol instead a practice or term for interconnectivity of distinct blockchain networks via different methods.

Blockchain bridges are a need of the moment and many cryptocurrencies are in the works to make functional bridges with secure means to scale their networks and improve onboarding. Verus is also working on a decentralized bridge to connect with the Ethereum network.

Bridges can make cryptocurrencies more popular and widely accepted if not better but near the colossal scale of FIAT acceptance around the globe.

@everyone Announcing v0.7.3 CRITICAL mainnet upgrade and the world premiere of the Verus Project’s new PBaaS technology multicurrency, multichain DeFi protocols, and immediate public availability of its fully functional, multichain testnet.

Soon is today! With no programming, you can now create new identities, currencies, liquidity pools, and blockchains for your business, your government, your projects, a worthy cause, your family, or your next decentralized application suite. Send currencies worldwide on the same chain, or across blockchains with ease. Even convert currencies to others on the network without an exchange by sending to yourself and converting along the way.

Since tomorrow at 19:00 UTC, we have the community marketing call for all who want to join, we will take that opportunity to provide a starter on how someone can create a PBaaS chain with a simultaneously launched DeFi currency bridge, and hold a community Q&A session about this new technology.

This testnet includes following capabilities, which to our knowledge are not available on any other decentralized platform.

Self sovereign, revocable, recoverable identities (currently on mainnet) with zero-knowledge privacy support (VerusID) - Enables permissionless registration of friendly name strong identities and funds addresses that are simultaneously fully self-sovereign, revocable, and recoverable.

Staking-capable time locking and theft prevention (Verus Vault) - Enables identities to be locked, preventing any funds under their control from being spent while locked, but still allowing seamless staking of funds.

Multi-currency, user created, decentralized tokens and merge-mineable, interoperable blockchains without programming - Enables any user with an ID to create their own token currency or even full-fledged, multi-currency, ID-issuing 50% POW/50% POS, 51% hash attack resistant blockchain that can send and receive from the Verus chain which launched it.

Consensus integrated DeFi liquidity pools and fractional currency baskets - Enables any ID owner to define Verus DeFi fractional basket currencies with one or more asset currencies backing the liquidity pool at a fractional percentage ranging from 5% to 100%.

Blockchain-based, crowdfunding currency launches with minimum participation or automatic refunds, including for dual launches (blockchain and bridge) - Enables you to set required minimum levels of worldwide participation in your preferred currencies on chain. If by the start time of your currency, minimums are not met, all participants will automatically get their pre-conversions (minus network fees) refunded.

Simultaneous blockchain and blockchain liquidity pool launches - Enables the launch of a world class, worldwide, merge-mineable blockchain along with a fully decentralized or centralized “bridge” converter liquidity pool as part of defining a new blockchain.

An interoperable, multichain network for new use cases and unlimited scale - Allows for the creation of an unlimited number of interoperable blockchains in the Verus network.

Merge mining of up to 22 blockchains simultaneously - Lets you multiply your hashpower by up to 22x by mining multiple chains at the same time, on the same hashpower.

Blockchain fee pools and anti-front running - Addresses MEV and more elegantly solves the EIP1559 problem with a block reward independent economy.

NOTE: THIS IS A CRITICAL RELEASE FOR MAINNET AND ALSO INCLUDES TESTNET. ALL NEW FEATURES ABOVE BESIDES VerusID ARE TESTNET ONLY

CONGRATULATIONS TO THE ENTIRE COMMUNITY!! GUI releases for all platforms: https://github.com/VerusCoin/Verus-Desktop/releases/tag/v0.7.3 CLI releases for all platforms: https://github.com/VerusCoin/VerusCoin/releases/tag/v0.7.3

https://discord.com/channels/444621794964537354/449633429198340106/840461316036755527

To determine the share of a liquidity provider in a pool, platforms generate a new token for the pair. This token is known as a liquidity pool token or LP token. They generate in accordance with the pair and share of the pool.

For example, if a trader contributes $40 worth of KMD and USDT to a Binance smart chain pool with a total value of $200. They will receive 20% of that pool’s LP tokens. This means that they own 10% of the crypto liquidity pool. On most platforms, the name of LP tokens varies with the trading pairs.

In the example above the LP token for the trading pair is KMDTUSDT. The number of tokens varies on the price difference for a said pair. For example, 1 KMD and 3 USDT will make 1 KMDUSDT token. The same goes for every asset you provide in the liquidity pool.

Why Liquidity Pool Tokens?

The purpose of LP tokens is to ensure there is no custody of your funds in a liquidity pool. They are the key function of an automated market maker in a liquidity pool. To ensure that a pool is really automatic, decentralized, and fair, LP tokens come into play.

The non-custodial feature of AMM platforms is key to being part of the decentralized finance ecosystem. You remain in control of your assets by receiving LP tokens in return for providing liquidity to the pool. This ensures a fair play providing you with something of value for providing the pool something of value.

Benefits of LP tokens?

These LP tokens also ensure network security. This means they are highly lucrative and crucial for a liquidity provider or platform. The more the coins stay inside the same ecosystem, the more secure, stable, and scalable the network becomes. To achieve this DEFI has introduced users with more incentives such as yield farming,

The Liquidity pool tokens generated are ERC-20 standard. This means they are a token like Ethereum or Binance smart chain tokens. Traders can also trade LP tokens outside their platform of origin. This means stakeholders can use them for further operations.

When you are investing assets to earn interest or profit this is the first thing that comes to mind Impermanent loss refers to the price change in your asset when invested vs now. In other words, it is temporary.

The difference between the original price (at the time of investing) of your asset vs the current market value is called Impermanent loss.

This means less dollar value for the number of assets invested. Cryptocurrencies are the most prone markets to impermanent losses.

Impermanent Loss In Liquidity Pools

The most prone type of markets for suffering impermanent losses are AMM markets. When you provide liquidity to liquidity pools and the price changes you suffer impermanent losses. These losses are temporary but affect the interest rates and face value of assets.

The bigger the change in price, the bigger the impermanent loss. This means that the amount of profit you earn on trading fees for providing liquidity can also change in some markets.

How to repulse

If you are a long-term investor, there is not a lot to worry about. Impermanent loss is temporary due to market unrest and once the market is on the bull run again, the impermanent loss can become profitable in the long term. So fixed deposits and safe assets are welcome.

Impermanent loss can be somewhat covered back in trading fees. For example, uniswap provides a 0.3% fee directly to the liquidity provided. If the value of the asset has decreased it can be covered to some extent with profit earned. This depends on the number of trades for a specific token or coin.

Stable Coins

Stable coins and penny coins usually have a stable price range. Stable coins are really stable, most of these coins remain at $1 value for months. Huge market unrest may decrease the value only by 2 to 3 cents. These coins are always backed by most investors and considered really safe approach for both long and short-term investors.

This is one of the fundamental concepts that anyone willing to invest should know. Always look for tried and tested Automated market makers. The increasing number of DEFI platforms also bring increasing flaws in their contracts, due to lack of originality or urge to launch uncatered product.

What is a liquidity Pool?

Liquidity pools are a collection of coins and tokens locked in a smart contract. These liquidity pools facilitate decentralized trading and lending. The ever expanding world of DEFI is generating new ideas such as yield farming, etc. All of these models have adapted liquidity pools as their backbone.

One of the first platform to integrate liquidity pools model was Bancor. They became widely popular with the launch of uniswap and later on Binance adaption. This model is not exclusive to large investors only. Anyone with funds can contribute to pools and earn incentives.

Liquidity Pools vs Orderbooks

The previous widely used trading model was orderbook model. In this model makers and takers used to settle on a price fair for both. Makers were those willing to sell their assets at the highest price. Takers were buyers willing to buy an asset at the lowest price. This model was good but with a few problems.

For every trade executed on an orderbook the maker had to pay gas fee to get converted funds in their wallet. This seems fair but Ethereum chain has a hefty gas fee even on transactions of pennies or a few dollars. Market monopoly was another problem for takers to buy illiquid assets at high prices. Finding assets that were illiquid on a good price was also a problem.

This was both a problem for makers and takers as on chain transactions on Ethereum chain were almost impossible. A two layered chain or pegged tokens is a method widely used but still unstable.

In liquidity pools there is no gas fee concept the liquidity providers have a pool of assets and price is automatically generated. Liquidity pools have trade fees as low as 0.17% which is better than many large scale centralized exchanges.

How does a Liquidity pools work?

Liquidity pools use Automated market maker (AMM) model. This comes as a game changer as a buyer does not have to rely on a seller but instead trade from a pool directly. We have mentioned previously that, assets stored in a smart contract are called liquidity pools.

This is called peer to contract trading. A buyer does not need a seller with an order of his/her matching. They only need enough liquidity in a pool to execute trade directly from the pool. An algorithm manages trades, prices and fees automatically.

In every liquidity pool the ratio of assets is always 1:1. For example, if there is a pool of KMD/USDT and the price of KMD is 3 USDT each. There should be 3 USDT for each KMD in the pool. If the pool has 1000KMD it should have 3000 USDT. This ensures a smooth trade execution with maximum asset utilization.

For each trading pair liquidity providers get LP (Liquidity pool tokens). 1 LP token means 1 KMDUSDT token for 1KMD:3USDT in liquidity pool. This represents the amount of liquidity provided for an assets. LP tokens are exchangeable but makes liquidity pool concept more complex and bloated.

Conclusion

The concept of Liquidity pools in DEFI world is a breakthrough and is being used in a number of cases. Some examples can be yield farming, governance projects, minting synthetic assets. DEFI is connecting traditional finance with more and more newer concepts such as tranching.

Liquidity pools are highly lucrative but comes with risks as well. You can read this article on impermanent losses, involving risks with liquidity pools.

Decentralized Bridges to Connect Cryptocurrencies

Bridges in the verus ecosystem are a feature of Public Blockchain as a service. These bridges will allow other cryptocurrencies to flow in the verus ecosystem. Bridges will allow blockchain interoperability for the verus ecosystem.

Users will be able to freely trade coins from other ecosystems due to bridges. This includes sending, receiving, and storing coins and use of verus ID. These bridges will connect other cryptocurrencies in the form of tokens.

Bridges will be a key part of the verus DEFI system. They will ensure seamless transaction back and forth between blockchains. The liquidity provides will get transaction fee making sure verus remains a network economy.

Useful?

Different blockchains would have different bridges. This will ensure network reliability and security. The Ethereum bridge will be the first to get launched. Developers who are looking to develop their own bridges are welcome.

The verus DEFI system will provide liquidity in a form of an AMM with a reserve and fractional currency. Bridges will free users from the unreasonable gas fees on the Ethereum and native networks.

The tokens created on the verus ecosystem will be available on the Ethereum network. These tokens will be of ERC-20 type and will be available on the Ethereum network. This will provide incentives plus a chance to users looking forward to developing Ethereum tokens.

What is Komodo DeFi Engine?

Komodo DeFi Engine (KDE) previously known as Market Maker 2 (MM2) is the primary protocol that powers the atomic swap process. It allows Atomic DEX to be a market leader in the world of Decentralized exchanges. KDE is a complete suite of open-source blockchain development tools, which includes an atomic swap engine (backend/core), APIs and other set of programs and rules.

Before the Defi engine, the previous protocols used by AtomicDEX were not compatible and outdated to modern threats and user volume. There were two problems faced by the previous market makers.

Komodo uses the UTXO model as it is a Z-cash fork. There are a few blockchains in the world that use UTXO (Unspent Transaction Output model). These chains are usually Bitcoin or ZEC-related/forked blockchains. UTOX model is a very effective ledger management technique for a blockchain. They begin and end each transaction.

The internet is also not a seamless data connection all of the time. The previous market makers worked on open ports and specific firewalls. This was the second biggest problem faced by previous market makers. To work with a client-side p2p exchange, the internet connection is really important. This makes sure that the app is completely in sync with the blockchain so there won't be any hurdles while having an exchange.

KDE uses libtorrent which implements BitTorrent protocol. This helps KDE operate without any connectivity gaps and network anomalies. In this protocol, the swap works in a torrent type of way. This shows the level of dedication and creativity the atomic DE‌‌X team has towards this technology.

Break down of the Trading Process

Here is a step by step breakdown on how Atomic DEX  allows peer to peer atomic swaps from both a maker and taker perspective. 

(Steps you’ll see when swapping coins)

If a Maker posts a trade on AtomicDEX it is registered as Step 0. This is not a part of the trading process but it is important as it is initiating the trade. This can be called STEP 0.

(Click on the Trade button to initiate a trade (STEP 0))

Step 1: <DEXfee> payment

The Taker which will usually see an order to fill trades on a Maker’s offer and accepts it. In order to verify the trade taker will pay a fee of 0.15% of the total trade amount. The purpose of the swap fee is to get rid of spam requests. Note that Makers do not pay any trading fees on AtomicDEX.

After the taker has paid the exchange fee the maker will verify and move on to step 2 which will be sending the maker payment. Please note all of this is possible due to Market Maker 2 and automated. You don’t have to literally verify it yourself.

Step 2: <MakerPayment> Is Sent

Maker sends his payment, known as the Maker Payment, which is sent to a P2SH address (for Bitcoin-protocol coins) or to a smart contract address (for ETH and ERC-20 tokens).This commits senders funds to a hash.

Step 3: <TakerPayment> Is Sent

Once the Maker payment is sent to a hash locked or time locked address the taker payment is sent using the same algorithm in a hash locked address which will be transferred later on to the wallet address. 

Step 4: <TakerPayment> Is Spent

Once the taker payment is hash locked the maker payment is released from the time lock into the personal wallet address of the taker. This is possible once a secret 32 byte hash code is revealed.

Step 5: <MakerPayment> Is Spent

Similarly, the taker payment is unlocked in the same mechanism and sent to the maker's personal address. The secret byte code is public once the time lock is complete upon successful transaction.

This long and technical process is automated and only possible due to the komodo defi engine. The engine runs automated and secure while keeping the network secure, seamless, and quick. Developers can refer to docs if they want to use the public APIs.

Decentralized Finance and AMM

Automated market makers or AMM is a protocol that allows traders to convert their tokens without interacting or relying on another trader. This is possible due to large liquidity pools of different assets by different providers available to oblige traders.

Automated Market makers allow chain to chain interaction and exchange. They are the most inrigual part of a liquidity pool. AMM allows trade execution from different pools, multiple pair search, best prices for both traders and liquidity providers.

AMM beats typical DEX order books by setting prices mathematically according to the liquidy available. This is called a deterministic algorithm. The makers are the liquidity providers which are incentivized by the fee received on the trade. The formulae of organizing prices are mathematical and vary according to the platform.

How is AMM different from a DEX protocol?

The only difference is the orderbook. A DEX orderbook consists of different users posting trades. A make creates an order to add liquidity to the orderbook. A taker on the other hand fills that order and the trade gets succesful.

This means either a taker or the maker is agreeing to a price set by the maker or trader. A maker can set 102 USDC for 98 DAI and the taker has to accept the order in order to swap his assets.

Automated market maker completely addressed this problem and has eliminated makers role. The market makers are liquidity providers that reserve their assets to form a pool of assets. Everyone who wants to exchange their tokens is a taker. This pool of assets acts as a market maker.

Two of the most famous platforms using AMM protocol are uniswap and binance smart chain. Ethereum and Ethereum centric assets currently dominate the market due to higher liquidity pools.

This is mainly due to the number of stable coins developed on the Ethereum blockchain. More liquidity providers are interested in these assets to avoid short-term losses. Stable coins are low volatile and considered a safe asset.

Verus is also working on reserve pools to connect Ethereum with the verus blockchain. This will be possible through decentralized bridges and fractional currencies.

The Atomic Swaps market works on makers and takers trading. In this method, people who create orders are called makers, and those who fill those orders are takers. The order book is updated instantly when an order is made or matched.

This maker and taker model is different from what is defined in the finance and stock market world. The order orders made are added to the order book and orders taken are removed from the order book if they reach full limits/liquidity.

What is a Maker?

Makers are regarded as traders who provide liquidity to the market by creating orders at an off-set market price or at prices/quotes that are not already available in the orderbook. Makers in AtomicDEX don’t pay any fees and can set a custom price for peculiar orders. 

This means that a maker can make good profit while trading if they think an orderbook has a low liquidity for a particular swap or exchange between two assets. On the contrary this means holding your coins for a specific period of time until an order is matched.

What is a Taker?

Market takers are traders who remove liquidity from the market by filling an order and taking an asset off the orderbooks. When working with AtomicDEX takers pay a maximum of 0.15% fees. An arbitrary opinion and analysis might suggest that takers in the cryptocurrency world aren’t usually looking for profits, instead they just swap their assets.

Takers can also make profit by only filling orders with the lowest liquidity or demand as usually these orders have a higher profit ratio and lesser chances or being filled. In these orders would usually have to pay less and get more.

What is liquidity?

Liquidity refers to the speed and capacities of an exchange when converting one cryptocurrency to another. Popular trading pairs tend to have a higher liquidity rate. This is mainly due to more orders being made and more takers rush to fill these orders. 

In AtomicDEX liquidity is provided by traders and users only as it has an aim to make a transparent and decentralized exchange with no authoritarian involvement. 

How to make an order on AtomicDEX

Creating an order on AtomicDEX is as easy as it’s told. Let’s go through the process of making an order (A pictorial representation).

Experience Crypto
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