# Token Swaps

Published 2022-09-19

# Introduction

Swaps are the most common way of interacting with CroSwap. Swapping is straightforward: a user selects an CRC-20 token that they own and a token they would like to trade it for. Executing a swap sells the currently owned tokens for the proportional[1] amount of the tokens desired, minus the swap fee, which is awarded to liquidity providers[2]. Swapping with CroSwap is a permissionless process (open for anyone to participate).

Swaps using CroSwap are not executed against discrete orders on a first-in-first-out basis like traditional order book trades — rather, swaps execute against a passive pool of liquidity, with liquidity providers earning fees proportional to their capital committed.

# Price Impact

In a traditional order-book market, a sizeable market-buy order may deplete the available liquidity of a prior limit-sell and continue to execute against a subsequent limit-sell order at a higher price. The result is the final execution price of the order is somewhere in between the two limit-sell prices against which the order was filled.

Price impact affects the execution price of a swap similarly but is a result of a different dynamic. When using an automated market maker, the relative value of one asset in terms of the other continuously shifts during the execution of a swap, leaving the final execution price somewhere between where the relative price started - and ended.

This dynamic affects every swap using CroSwap, as it is an inextricable part of AMM design.

As the amount of liquidity available at different price points can vary, the price impact for a given swap size will change relative to the amount of liquidity available at any given point in price space. The greater the liquidity available at a given price, the lower the price impact for a given swap size. The lesser the liquidity available, the higher the price impact.

Approximate[3] price impact is anticipated in real-time via CroSwap's dApp, and warnings appear if unusually high price impact will occur during a swap. Anyone executing a swap will have the ability to assess the circumstances of price impact when needed.

# Slippage

The other relevant detail to consider when approaching swaps with CroSwap is slippage. Slippage is the term we use to describe alterations to a given price that could occur while a submitted transaction is pending.

When transactions are submitted to Cronos, their order of execution is established by the amount of "gas" offered as a fee for executing each transaction. The higher the fee offered, the faster the transaction is executed. The transactions with a lower gas fee will remain pending for an indeterminate amount of time. During this time, the price environment in which the transaction will eventually be executed will change, as other swaps will be taking place.

Slippage tolerances establish a margin of change acceptable to the user beyond price impact. As long as the execution price is within the slippage range, e.g., %1, the transaction will be executed. If the execution price ends up outside of the accepted slippage range, the transaction will fail, and the swap will not occur.

A comparable situation in a traditional market would be a market-buy order executed after a delay. One can know the expected price of a market-buy order when submitted, but much can change in the time between submission and execution.

# Swap Fees - 0.2%

Not all swaps are subject to fees. When fees are taken, the fee is split amongst ALL liquidity providers, never solely CroSwap. This fee is split proportionally to all liquidity providers.

A liquidity pair is NOT active or generating fees for providers when the spot price moves out of a position's range.

A liquidity pair is can become active again if the spot price reverses and reenlist the position's range, the position's liquidity becomes active again and will generate fees.

If you are interested in learning more, understanding risks, or just conceptualizing a liquidity position you can read this article: https://pintail.medium.com/uniswap-a-good-deal-for-liquidity-providers-104c0b6816f2

# CroSwap's Liquidity Provision

On all liquidity pairings provided by CroSwap, our liquidity fees will be allocated in the following ways:

  • 50% - Sent to the CroSwap Treasury.
  • 20% - Used to form $CROS/CRO Liquidity.
  • 10% - Used to buy and burn $CROS.
  • 10% - Used to buy $CRON and send it into the Node Vault.
  • 10% - Sent to the USGF (Universal Sustainable Growth Fund).

[1] - Proportional in this instance takes into account many factors, including the relative price of one token in terms of the other, slippage, price impact, and other factors related to the open and adversarial nature of Cronos.

[2] - For information about providing liquidity, see Liquidity Pools.

[3] - CroSwap's dApp informs the user about the circumstances of their swap, but it is not guaranteed.