A Complete Guide to QuickSwap

QuickSwap is the Uniswap equivalent of the Polygon network. Its protocol was forked from Uniswap in 2020, just four months after Polygon’s mainet was launched. 

As a decentralized automated market exchange, QuickSwap allows its users to mine liquidity through smart contract-controlled pools that give traders the ability to use the platform to swap and trade ERC20 tokens.

The appeal for QuickSwap as opposed to conventional options such as Uniswap is the low fees and the quick transaction finality on QuickSwap afforded by the Polygon Network. 

In this guide, we take you through all the features you can expect on QuickSwap with a step-by-step guide on how to mine liquidity, and swap tokens.

An introduction to automated market makers (AMM)

Automated market makers have become the underlying protocol that powers most decentralized exchanges today, and for a good reason. The design of AMM protocols has enables a movement of autonomous DeXs that are capable of providing reliable sources of liquidity on a decentralized framework.

Before the advent of AMM protocols, crypto traders and investors had no choice but to rely on centralized exchanges as most existing decentralized alternatives were slow and lacked sufficient liquidity.

The basic principle of an AMM protocol works like this: instead of an order book and a matching engine that matches buy and sell orders, an automated market maker is given a specific amount of capital in a smart contract controlled pool. The smart contract then goes ahead to fulfill both buy and sell orders.

The smart contract, therefore, acts as the market maker of the decentralized exchange. With the absence of an order book or a matching engine, buyers and sellers don’t need to wait for their order to be fulfilled, as the smart contract stands in the gap to always fulfill orders.

Anyone can submit capital to the smart contract controlled pool and in return, receive a portion of the transaction fees generated from traders seeking liquidity. To ensure accuracy, the smart contract that controls the liquidity pool is designed with an algorithm that determines supply and demand to price the tokens in the pool appropriately.

Liquidity providers have to provide an equivalent amount of two tokens to the pool. For instance, in a BTC/ETH pool, the liquidity provider will provide $100 worth of BTC for $100 worth of ETH. This helps the smart contract maintain a constant amount of liquidity especially if the smart contract is designed with a constant products algorithm.

QuickSwap’s brief history

Inspired by Uniswap’s successful run, QuickSwap takes on the same constant product AMM protocol you will find on Uniswap. However, while Uniswap took a while before the release of its native UNI token, QuickSwap immediately launched with the QUICK token, which was structured with 96.75 % of its supply reserved for the community.

The QUICK token is also used in governance as QuickSwap is a community-controlled project where QUICK token holders get to vote on the future trajectory of the platform.

At its core, QuickSwap was brought about as a solution to the problems users experience on the Ethereum ecosystem. As Ethereum continues to grow in popularity, its network gets congested, and dApps such as Uniswap surfer as a result. This prevents accessibility of DeFi tools and platforms to the masses as transaction fees skyrocket, and the network generally slows down.

Thanks to the Polygon Network, QuickSwap offers a Layer 2 calling solution to decentralized exchanges. Polygon Network makes it possible for QuickSwap users to achieve near-instant transaction finality and negligible fees.

What is the Polygon Network?

Polygon Network (formerly Matic Network) is a blockchain development framework that enables Layer 2 solutions designed to enhance the performance and user experience of blockchains.

The Polygon Network consists of sidechain protocols that support the Ethereum blockchain. Think of Polygon’s solution as a set of side roads to the main highway that is Etehreuma and Polygon’s side roads working to offload the traffic from the congested Ethereum highway.

Polygon’s vision is to achieve interoperability of blockchains while maintaining security and without compromising scalability. To achieve all these three goals, Polygon deploys a series of innovations, including a layered technical architecture made of several foundational blockchains, each with its specific purpose.

How QuickSwap works

As mentioned earlier, QuickSwap is an AMM protocol that features smart contract-controlled liquity pools for traders to swap one token for another.

Similar to other AMM protocols, there are no market makers or takers on QuickSwap as everyone’s trade is made with the smart contract in the liquidity pool. QuickSwap is capable of crowdsourcing the liquidity in its pool from platform users who lock their funds in the pool to facilitate liquidity.

To incentivize liquidity provision, the fees generated from trades on the platform are shared among liquidity providers proportional to their contribution to the liquidity pool. Upon submitting liquidity, each liquidity provider receives Liquidity Pool tokens (LP) that represent their stake in the pool. These LP tokens can be redeemed for the accumulated rewards and the liquidity originally submitted to the pool.

With QuickSwap, liquidity providers can expect to receive 0.3% of the platforms’ fee. QuickSwap uses the Constant Product formula to price tokens in its liquidity pool.

Constant Product Formula

This formula enables QuickSwap to maintain a constant product algorithm across all tokens in the platform’s liquidity pool.

The formula states that x*y =k where x is the quantity of token A in the pool and y is the quantity of token B in the pool. The value of these two tokens must result in a constant k.

For example, if you have 1ETH priced at $3000 you will need 3,000USDT to provide liquidity to an ETH/USDT pool. Therefore, as more ETH leaves the pool due to high demand from traders, the supply of USDT rises, and the price of ETH goes up as well.

Thanks to this formula, the smart contract can determine the price of each token in the pool based on supply and demand, thereby eliminating the need for an intermediary.

QuickSwap Features

QuickSwap offers users a variety of tools that complement its AMM protocol. The platform features limit orders courtesy of Galeto, which is a third-party crypto exchange protocol. 

A limit order is a token buy or sell order that can be set to automatically execute once the price of either one of the tokens hits a pre-specified price. QuickSwap also offers an easy-to-use analytics interface where you can have a clear view of the total liquidity locked throughout the QucikSwap ecosystem as well as the daily trading volume.

QuickSwap also comes with a token bridge that users can use to extend the utility of their tokens to multiple blockchain networks. With a token bridge, you can essentially leverage the utility of Bitcoin on the Ethereum network by creating a peg of Bitcoin that operates as an ERC20 token. 

QuickSwap’s built-in token bridge supports the conversion of tokens on the Ethereum Polygon and Solana network.

How to mine liquidity on QuickSwap

If you are looking to provide liquidity on Uniswap the following steps will help you with the best solution. You will need a decentralized wallet such as Trust Wallet, Coinbase Wallet, or MetaMask for this.

Step 1: Start by logging onto the official QuickSwap exchange website on your mobile browser or desktop. Be sure to confirm that you are following the right link otherwise; you might end up connecting your wallet to a compromised app. The right app link is quickswap.exchange.

Step 2: Once you have confirmed that you are on the right site, connect your MetaMask to the QuickSwap app. You can also use Trust Wallet as it connects to the Polygon blockchain network as well.

Step 3: Given that QuickSwap is built on Polygon, you will need MATIC tokens in your wallet to pay for transaction fees. All deposit an equivalent amount of a pair of tokens to your wallet in preparation for providing liquidity. 

Step 4: Head over the liquidity mining section of the application under the Farm tab.

Here, you will be able to select from several liquidity mining pools. We will use the ETH-USDC pool as an example.

Step 5: Select the deposit button. This will show you the total liquidity in the pool and the amount you can earn per day in that pool.

Finally, connect your wallet to make the deposit. You will automatically receive QuickSwap’s LP tokens (dQUICK) in your MetaMask wallet once the transaction is confirmed. 

When you withdraw your liquidity, the smart contract in the pool will automatically claim your dQUICK earnings and update your wallet’s ledger accordingly. You can go ahead and trade in your dQUICK for ETH or USDC to take profit. 

How to Swap tokens on QuickSwap

Swapping tokens is just as easy. With your MetaMask wallet connected, head over to the QuickSwap DeX and select the “Swap” tab of the interface. This will allow you to select the tokens or coins you want to swap.

In this example, we will trade ETH and USDC. With your tokens or coins selected, enter the amount of ETH you want to trade for the USDC in your wallet.

The corresponding USDC amount required for the trade to execute will be populated automatically based on the prevailing market price. Now carefully review the transaction details and click the Swap button below to complete the process. You will receive a prompt for your confirmation, and once confirmed, the transaction will proceed to completion in a matter of minutes. 

Risks of using QuickSwap

Several risks are involved when interacting with any AMM protocol. To begin with, a bug in the smart contract of the liquidity pool can potentially result in a financial loss if the bug allows bad actors to infiltrate the pool and steal the funds. For AMM protocols that do not implement an upgradable code feature, such as QuickSwap, bugs can cause permanent loss of funds. 

Another risk is that of impermanent loss, where a trader could be in the process of placing a trade when the market of one of the coins in the pool crashes. This results in a partial or complete loss of funds as there is no insurance policy to cover such losses. This also occurs when the price of one of the tokens in the liquidity pool changes relative to the other one, the dollar value of either token is affected. 

For instance, if your liquidity pool has ETH and USDC, and the price of USDC falls temporarily due to market volatility, the amount of ETH you withdraw from the liquidity pool will be less than that which you originally submitted. this is one of the flaws of the Constant Product formula as it has to maintain a constant in the pool. However, the solution can be to wait for the market to stabilize before withdrawing your liquidity.

Another potential dealbreaker is that since platforms such as QuickSwap are decentralized, there is no customer service, so any emergencies can only be solved by consulting other users in the community groups and channels. 

Weighing the Pros and Cons

AMM protocols such as QuickSwap have several benefits over traditional centralized exchanges. First, users don’t have to deal with the headache of being hacked or suffering from an exit scam as decentralization renders these actors powerless. When every user has total control of their wallet and only interacts with a smart contract, cyber-attacks are neutralized to an extent.

Moreover, users can enjoy unperturbed access to their funds without lengthy withdrawal periods or KYC and AML limitations where extreme security measures are required resulting in slow trade executions.

QuickSwal offers this and more to its users, thus enabling increased DeFi adoption. However, with great freedom comes even greater responsibility.

The most obvious risk for QuickSwap users is faulty smart contracts that can be exploited. The good news is that QuickSwap’s smart contracts are audited by CERTIK. The issue of impermanent loss also remains to be a concern among many DeFi enthusiasts; however, various developments are at work to find a solution.