While ETH and BTC pairs are the most traditional and usually the most liquid crypto exchange pairs, there is clear demand for token to token swaps by casual traders. In fact, for the longest time this has been the most requested feature on our protocol.
In theory, nothing prevented token to token trading to happen on the v1 of Saturn Protocol. Those who have read the source code of Saturn Protocol v1 smart contracts know that the basis, the foundation for this functionality has always been there.
What had to be solved for successful token-to-token trading launch
In practice, there were three issues that prevented successful token-to-token markets from emerging.
The first issue is liquidity. The more markets you have, the less money you have in each market. Having ETH only markets (and ETC only markets on Ethereum Classic blockchain) has allowed us to bootstrap liquidity and provide useful services to our customers.
The second issue is related to how liquidity appears on the market - market making. While we wrote, released, open sourced the market making bot for this profitable strategy, and wrote plenty of tutorials on how to set it up, it turned out that it is still too complicated a process for most crypto traders.
The third issue is trade routing. In order to take advantage of all available liquidity the exchange platform needs to have a lot of coordination and sophistication in order to support token-to-token markets. In case of decentralized exchanges this is perhaps even more true than ever.
How Saturn Protocol v2 solves these issues
Let's address these issues in reverse order. In Saturn Protocol v1, the smart contracts keep track of people's orders and ensure invariants are preserved via trading - keeping all funds secure and all trades transparent. Trade routing - matching buyers with sellers, is done off-chain for scalability, akin to Lightning Network.
This was a necessary requirement in order to enable the on-chain order book design and existence of market making bots. Saturn Protocol v2 removes the market maker role and becomes the exclusive algorithmic market maker with crowdsourced liquidity via Liquidity Pools.
Thus, by switching the protocol design, we not only become more user friendly to crypto investors and provide a new DeFi primitive for the ecosystem, but we also solve two of the three issues that were blocking token-to-token trading launch.
The last blocker, liquidity provision for all token-to-token trades, is solved by a combination of aforementioned Liquidity Pools, as well as by moving trade routing on-chain. By granting exclusive market making rights to the smart contracts instead of fallible humans, we can move trade routing to smart contracts as well.
This design also has a number of side benefits that will increase Saturn Protocol adoption, including Automatic Price Discovery and better dapp integration. Naturally, all Saturn Rings will support token-to-token trading, but it is also important to know that Saturn Liquidity Pools will be 100% compatible with Ethereum's #defi ecosystem.
Future is bright!
New to Saturn Network?
Read more about Saturn Protocol V2 below, an upcoming major exchange protocol upgrade which will bring token to token pairs, automatic market making, DAO activation for community governance, dividends pay outs and much more!