Suppose you want to get into cryptocurrency trading. Your first instinct would be to park your money with a centralized exchange. However, data from the UK-based analytics firm CryptoCompare indicates that almost all top cryptocurrency exchanges increased their market share in the first half of this year, from 89% in August 2021 to almost 96% in February this year.
Many of these exchanges have one thing in common: they are all centralized.
Centralized exchanges refer to the idea that a management body at the head controls all trading activities within the platform.
This includes coordination between a user’s bank and multiple blockchains or protocols. Exchanges acquire cryptocurrencies on their platform, earn liquidity, and offer it to potential users in exchange for their currency or fiat.
For the past few months, decentralized exchanges have emerged as a potential threat to the centralized exchange stronghold. Several cryptocurrency enthusiasts and users have stood behind the phrase “not your keys, not your coins” to describe overriding concerns about centralization.
While centralized exchanges or CEX offer greater liquidity and regulatory compliance, decentralized exchanges (DEX) rethink the way exchanges can operate. They offer lower transaction costs and, more importantly, better control over assets.
These exchanges have been all the rage lately, with an 858% increase in trading volume over the past year according to a Corner Telegraph report.
Taking note of this change in user behavior, Chandrashekar Ramu, Aayushi Jainand Puneet Bagewadi installationtwo years ago.
Simply put, Zeroswap is a decentralized exchange aggregator. It scans multiple blockchains offering a particular token and facilitates trade for a user at the best possible price. “We are aggregators, we try to get the best rates available on exchanges like KhyberSwap, Uniswap. So we aggregate liquidity from there and we try to provide the best rates to customers,” Ramu said. The story deciphered.
It also provides users with the ability to trade without having to pay a hefty transaction or gas fee, allowing for a smooth transaction process throughout.
At the moment, ZeroSwap brings together six blockchains, including Ethereum, BNB, Avalanche, Celo, Optimism and Fantom.
This idea earned the startup $2.2 million two years ago from investors like AU21, TRGC, GenBlock, Alphabit, M6, Pranav Sharma (Founder, Woodstock Fund) and Lester Lim (X21 Ventures).
It has nearly 14,000 users worldwide and is seeing an increase in active users in markets like Vietnam, Turkey, and the Philippines.
The zeroswap method
Zeroswap’s core offering is gasless transactions without the need to pay excessive protocol fees. Suppose you hold around 1 AVAX token and want to exchange it for Binance USD or BUSD, you will have to pay the target protocol a transaction or gas fee.
With Zeroswap, you are free to trade your AVAX to Binance without having to pay the BNB smart chain protocol fee. This can be done by activating its meta transactions where Zeroswap will pay the fees on your behalf.
Aayushi explains, “For example, when a user uses a credit card in a store to pay a bill of 1000 rupees, no additional amount is charged to users because D-mart would pay the 2% or 1% as Visa or MasterCard Fees. We work the same way in that we don’t charge users gas fees.”
Trading on DEXs sometimes requires a user to hold a token before trading. Using the BNB Smart Chain example from earlier, for example, if a user wants to trade on the Binance Smartchain (BNB), they will need to have some of their native tokens in the wallet prior to the trade. Zeroswap removes this need.
“Even if users don’t have a particular token in their wallet, they can still continue to trade and select custom tokens without worrying about paying gas fees for that blockchain,” says Aayushi.
Due to its aggregation approach, users can choose from several available tokens like Dogecoin or Litecoin without signing up with an exchange.
Getting Indian users to try ZeroSwap has not been without its challenges. According to the founders, breaking into the Indian market was still difficult. Although there are millions of Indians who regularly trade cryptocurrencies, there are still several who are hesitant to try DEXs. India’s existing FEMA laws further complicate the legal terrain in which these exchanges operate, making users wary of DEXs.
With more crackdowns on centralized exchanges, it can become difficult to move these assets into DEXs, even if users want to. “At present, many centralized exchanges have disabled crypto withdrawal and it is not easy to move crypto to DEX,” says Aayushi.
This has also been Zeroswap’s main challenge: educating users on how the platform works and its potential benefits. Although it has seen success in crypto-friendly markets, in India the adoption process is slower. “Currently, we are just making it clear to our customers that you really don’t need to have an essence token in your wallet, so you can just hop on the platform and trade,” says Aayushi.
Despite these adoption challenges in India, Zeroswap is currently making money from a few outlets, primarily the initial digital offering or IoT launch pads, a form of crowdfunding.
It also offers users the option to join a staking pool of its native ZEE token to earn profits. ZEE is also used to facilitate gasless transactions on the platform. However, it plans to implement a small platform fee when it opens a new business-to-consumer channel.
Overcome the obstacles
For Zeroswap, the obstacles come down to technological limitations. Sometimes it can be difficult to transact when a token is spread across multiple DEXs, as it puts pressure on a token’s liquidity. Or if a blockchain experiences traffic, it can lead to increased gas fees, which can make the process expensive.
Then comes the problem of not being able to convert fiat to crypto directly in the exchange. “So you either have to have crypto on a centralized exchange where you withdraw it, then bring it to a chain, then trade,” Aayushi adds.
To counter this, next year Zeroswap aims to offer simpler solutions to new users where payment solutions like Moonbeam and Juno Finance will be integrated into the platform to enable fast exchange of stablecoins to fiat and vice-versa. .
However, the founders remain optimistic about the adoption of DeFi, “I think this industry is barely five or six years old and DeFi is a fundamental foundation layer of blockchains that will evolve further,” concludes Chandrashekar.
(This article has been updated to correct a typo.)