Swaps

Introduction

Token swaps in Casperswap serve as a simple way of trading one CEP-18 token for another.

From the end-user standpoint, swapping is intuitive: just pick an input token and an output token, specify an input amount, and the protocol calculates how much of the output token they’ll receive. They can then execute the swap with just one click, immediately receiving the output token in their wallet.

In this guide, we’ll look at what happens during a swap at protocol level, in order to gain a deeper understanding of how Casperswap works.

Swaps in Casperswap are different from trades on traditional platforms in that it does not make use of an order book to represent liquidity or determine prices, instead resorting to an automated market maker mechanism in order to provide instant feedback on rates and slippage.

As mentioned in Protocol Overview, each pair on Uniswap is underpinned by a liquidity pool. Liquidity pools are smart contracts that hold balances of two unique tokens and enforce a specific rule for depositing and withdrawing them.

The aforementioned rule is the constant product formula: when either token is withdrawn (purchased), a proportional amount of the other must be deposited (sold) in order to maintain the constant.

Anatomy of a swap

At the most basic level, all swaps in Uniswap V2 take place within a single function, aptly named swap:

fn swap_exact_tokens_for_tokens(
        &mut self,
        amount_in: U256,
        amount_out_min: U256,
        _path: Vec<String>,
        to: Key,
    ) -> Vec<U256>

Receiving tokens

As implied by the function's signature, Casperswap requires swap callers to specify the amout of output tokens they wish to receive via the amount{0,1}Out parameters, which correspond to the desired amount of token{0,1}.

Sending Tokens

Less clear is the way in which Casperswap receives tokens as payment for the swap.

A detailed explanation and justification on the use of this particular method is available in the whitepaper.

The takeaway is that tokens must be transferred to the pair before calling any token-requiring method (the one exception to this rule being Flash Swaps). This means that in order to safely use the swap function, it has to be called from another smart contract. The alternative (transferring tokens to the pair and then calling swap) is unsafe to execute non-atomically on the grounds that sent tokens would be vulnerable to arbitrage.