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Polkaswap: New Business Model for DEX Liquidity

Polkaswap decentralized exchange (DEX) is breaking new ground in DeFi business models with its DEX-as-a-service offering.

The team behind decentralized exchange Polkaswap introduced a new model to boost the liquidity of smaller, startup project tokens. In a blog post published last month, they proposed to financially match any amount of native tokens that such projects invest in Polkaswap liquidity pools. Polkaspaw team believes that this will help builders to bootstrap their projects and reach new users.

Polkaswap is a non-custodial, cross-chain Automated Market Maker (AMM) type, decentralized exchange for swapping tokens based on Polkadot and Kusama relay chains, their parachains, and other blockchains connected via bridges. It is built on the Substrate-based SORA network, with a focus on interoperability between Polkadot and other blockchains. The project is supported by Web3 Foundation Grants Program.

Unlike centralized exchanges where the listing of the tokens is subject to approval and costs fees, decentralized exchanges allow any token to be listed. However, to start trading, the corresponding pools need to have liquidity. For popular pairs, it is solved by liquidity providers (LP) who deposit the pair assets and earn a share of trading fees. However, for less popular pairs such LPs are limited, and project teams need to deposit their own tokens, as well as an equivalent amounts of other side assets, such as Ethereum or stablecoins.

With the Polkaswap proposal, qualified projects deposit only one side of the liquidity pool, with their native tokens, and get a matching deposit from its parent SORA community, in the range of $50,000 to $500,000 in XOR tokens.

The program is named Polkaswap-as-a-service. In addition to the shared liquidity funding, it provides options for early revenue streams, collaboration in Market Making, marketing, and other services often sought by startup projects.

An illustration of Polkaswap-as-a-service collaboration
An illustration of Polkaswap-as-a-service collaboration. Source: Polkaswap blog

The program has already attracted its first clients. The Ternoa project which is building utility NFTs for real-world use cases will use it to launch its native token CAPS on Polkaswap. Ternoa is a project by Capsule Corp. Labs, and has more than 10 completed dApps and around 30 projects in progress.

DEX-as-a-service sounds like an attractive alternative to centralized 'launchpads' and can bring diversity and new opportunities in DeFi. We wish success to the team and continue to Observe.