If you’ve been following O3 Labs, you might’ve heard that we’ve been building a cross-chain decentralized exchange (DEX) called O3 Interchange. Maybe you’ve used our product, O3 Swap, before or maybe you’ve used a DEX like Uniswap or the countless other DEXs on the market. O3 Interchange is going to be unlike anything you’ve seen before in that it will allow users to swap asymmetric digital assets across chains, not just bridge symmetric assets. What that means is that O3 Interchange will allow users to swap token x on chain A for token y on chain B in the same seamless manner that crypto traders have come to love on DEXs. But, how will it do that? After all, when you bridged token x from BNB chain to Polygon that one time, you received token x, that is, the same exact token you sent.
The answer lies in O3 Swap’s history as an advanced aggregator which sourced liquidity and trading requests from DEXs on the source blockchain before bridging to another chain. Connecting users to the best DEX-based exchange rates was our specialty on O3 Swap thanks to the O3 aggregator that aggregated on the source chain to provide the best swap routes for users. With O3 Interchange, that same aggregator will be brought back to enable users to amass liquidity on not just the source chain, but also on the destination chain as well. What that means is that users of O3 Interchange will have the power of not one, but two DEXs in their hands with each and every swap. Through aggregating multiple DEXs on each chain, users are able to get the best price for their unique cross-chain swap.
That’s just one layer of liquidity on O3 Interchange though. O3 Interchange will have two liquidity layers; the aforementioned DEX liquidity from the O3 aggregator and our very own automated market maker (AMM) liquidity pools. This makes O3 Interchange a true cross-chain DEX because we’ll deploy these token pools ourselves with O3 users both providing native asset liquidity and balancing the native tokens they provide with ptokens, or cross-chain soft asset equivalencies. For example, the Eth pool will have both Eth and pEth while the USDC pool will contain USDC and pUSDC. These pools will reside on different chains to make cross-chain swaps possible. They’ll allow O3 Labs to open up our entire process of minting and burning substitute ptokens for scrutiny, so our protocol is both transparent and decentralized, just the way the first blockchains were designed to be. O3 Labs will not mint the ptokens to balance the pools. In fact, users themselves will mint these soft assets in order to take advantage of arbitrage opportunities within the pool. No other cross-chain project has done this before at scale and Interchange’s trustless approach is what makes O3 Interchange truly special.
These trustless token-ptoken liquidity pools function to provide users with native assets, not ptokens, when crossing chains. This feature is based on the tried and tested Curve AMM model which has been thoroughly vetted by other DEXs. The model is important because native assets have consensus on the blockchain unlike the ptokens or any other tokens minted by 3rd parties. In fact, users will never interact with these ptokens unless they’re doing so to take advantage of arbitrage opportunities within these pools. These soft assets merely act as a middle man to get our users the native tokens they desire, but remember, our users are minting these ptokens themselves, so O3 Labs does not mint the ptokens ourselves. Instead, users rely on each other to take charge of the ptoken. Thus, Interchange’s mechanism will demonstrate a true peer-to-peer approach to exchanging assets.
Finally, Interchange will be exceptionally scalable and capable of quickly supporting new assets and blockchains. Supporting new coins will only require deploying new token-ptoken AMM pools on-chain before enticing liquidity providers with $O3 rewards. Users of O3 Swap continually asked us to add new tokens and chains in the past so we plan to deliver. Supporting new blockchain networks will means connecting to the top DEXs on that chain in addition to deploying the most in-demand liquidity pools to facilitate trading. Supporting new chains and tokens on our bridge requires deploying the most in-demand liquidity pools, and aggregating DEXs is not a necessary step for the bridge module but is important for the swap module. Our AMM pool and aggregator model can scale up with even the best-in-class cross-chain protocols.