Finally, I am back with the 3rd installment in my SmartBCH tutorial series. In the last video I demonstrated how to configure the Metamask wallet for SmartBCH and how to use a bridge to transfer funds from the Bitcoin Cash main chain to SmartBCH. Today I’ll be giving you a brief look at the functionality of Decentralized Exchanges.
But first you might be wondering, what is a decentralized exchange and how does it differ from a traditional cryptocurrency exchange. With traditional exchanges you are required to send funds to the platform in order to buy and sell different crypto assets and the platform becomes the custodian of those funds. This introduces several requirements like KYC verification and puts you at risk of exit scams or hacks. A decentralized exchange, or DEX for short, enables users to buy and sell cryptocurrencies directly from their wallet without the need for 3rd party custodians.
SmartBCH, despite being less than 6 months old, already has at least 7 DEX’s. For newcomers entering the space, it can be overwhelming and hard to pick the right one. I’ve used all of them extensively and can confidently say that MistSwap is my top pick. It offers users the best liquidity for swaps, great farm yields, a wide range of functionality and an ambitious roadmap that the development team has consistently been delivering on.
So, without further ado, head over to MistSwap.Fi. You can begin using the DEX by clicking ‘Enter App’ which brings us to the Swap page. In the top right corner click ‘Connect to a wallet’, then select ‘Metamask’ and you will be prompted to confirm the connection with your wallet. Now you can perform your first swap! For the purpose of this demonstration, I will be swapping Bitcoin Cash for MIST, the native token of MistSwap. After entering an amount and clicking ‘Swap’, a confirmation window will appear with details of the swap. Of importance is the part which shows the price impact, which will vary depending on the size of your swap. If you want to adjust your preferences for slippage, this can be done from the transaction settings menu, otherwise proceed with the swap and confirm it in Metamask when prompted. MistSwap will then give you the option to add the token to your Metamask wallet, so that the token balance can be displayed. That’s it! DeFi is pretty easy right?
While swaps are the core function of a DEX, making them possible has required the introduction of a new concept called liquidity pools. By going to the pool tab, you can see that liquidity providers earn a 0.25% fee on all trades proportional to their share of the pool. Liquidity pools are comprised of an equal amount of 2 assets, for example $100 of Bitcoin Cash and $100 of MIST. These funds are locked in a smart contract and are used to facilitate decentralized trading on the swap page. Something that liquidity providers need to watch out for is impermanent loss, which I intend to cover in another video.
If you wish to provide liquidity it can be done by clicking “add” and then selecting your desired liquidity pair which in my case is Bitcoin Cash and MIST. Enter an amount of the first asset that you wish to provide as liquidity, and you’ll notice the field for the second asset is automatically populated with an equal amount. If you’re trading a token for the first time, you will click a button labeled ‘Approve’ before clicking ‘Confirm Adding Liquidity’, which sends 2 transactions from your Metamask wallet. After this your funds are now being provided as liquidity and they can be removed at any time you so desire.
Now, you might be wondering why someone would provide liquidity just to earn a small portion of 0.25% of all trades. Well here’s the kicker. MistSwap incentivizes people to provide liquidity by rewarding them with freshly minted MIST tokens and this is done through the farm page. By scrolling through the list of liquidity pools you will see their total value locked, their MIST rewards per day, and their current annualized yield. This is how you put your idle crypto to work and make big money by doing nothing, it’s passive income. When sorting the farms by APR, you will see that some are paying hundreds of percent per year. These are really lucrative opportunities to take advantage of, however the MIST reward for these farms are a lot less and if significant amounts of liquidity are added then the APR will drop substantially. In some cases, there might be added caveats with the tokens in question, so make sure you do your due diligence before aping in.
In the case of my Bitcoin Cash and MIST liquidity, based on the current metrics I can earn 48% APR. Let’s say that I staked $100,000 of liquidity in this farm, then theoretically I would earn $48,000 worth of MIST over a period of 1 year. In reality the price of the tokens fluctuate and so does the APR, therefore this is only an estimate. What’s great is these MIST rewards can be harvested at any time by going to the ‘Your Farms’ tab, where you can easily manage all the farms you are staking your liquidity in. These rewards can then be sold for the asset of your choice or reinvested in the farm to maximize your gains. However, there are other things that you can do with your MIST.
If you are bullish on MIST, and the success MistSwap as the premier SmartBCH DEX, then you should hold onto your MIST. Why? Well to answer that I will direct you to look at MistSwap’s Ethereum counterpart, SushiSwap. When adoption of the platform really kicked off, the price of SushiSwap’s native token exploded by more than 40x. SmartBCH is still in its infancy, therefore I would say there is a high probability of something like this happening in the future with MistSwap. To enjoy the full benefit of a pump like this, and not lose out to impermanent loss, you don’t want your MIST to be sitting in a farm either. Instead, you can go to the Stake page and Stake your MIST in exchange for another token called xMIST. For every swap on the exchange 0.05% of the fees are distributed amongst xMIST holders. Yesterday, that was equivalent to 7% APR and this interest continuously compounds until you unstake.
Holding xMist brings additional benefits. Earlier this week MistSwap became the first SmartBCH DEX, and SmartBCH project for that matter, to have built-in governance. The new vote page allows xMIST holders to create and vote on community driven proposals. When a proposal is created, a snapshot is taken of wallet xMIST holdings and those who held xMIST during the snapshot are eligible to vote. This is only the early stages of MistSwap becoming a decentralized autonomous organization, or DAO for short, and shows the developer team’s commitment toward decentralization.
In addition to everything I covered today, MistSwap has some highly anticipated features that are well on their way. Firstly, there is the Mist Bridge; a collaboration between MistSwap and Hop.Cash. The Mist Bridge will enable users to send funds between competing cryptocurrencies and SmartBCH. This is huge and by providing an easy way for people to leave competitors, it could very spur massive adoption of SmartBCH. MistSwap is also hard at work on Mist Lend, which will allow people to lend or borrow assets and provide greater opportunities to earn yield. As far as I understand, it’ll be pretty much identical to the lending functionality on SushiSwap, so if you want to learn more about it go and check that out.
This was a brief overview of Decentralized Exchange functionality. If you found this content helpful, please leave me a thumbs up. There is so much more to discuss that I could not fit in this video. I’ll certainly be doing a dedicated video on topics such as impermanent loss, and the next video in this series will cover essential tools for SmartBCH, so make sure you subscribe and you won’t miss these important topics.