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Project Spotlight: AirSwap

Project Spotlight: AirSwap

Continuing a journey through projects operating or nearing launch I will today look at AirSwap, another entrant into the increasingly crowded decentralised exchange (DEX) arena.

What is it?

AirSwap markets itself as a DEX that operates using a peer to peer protocol for trading Ethereum based ERC20 tokens. Unlike more conventional exchanges, it does not have an order book (which shows the list of all ‘bids’ and ‘asks’) but allows users to negotiate with each other directly.

Whilst this sounds like a potential regression – why would you want to go back to direct negotiations rather than just taking the best offer of anyone in the world? – there are significant advantages to this approach for AirSwap and their target audience.

Why should I care?

You might not need to use AirSwap if you are looking for an exchange to personally use as a low volume trading individual. The existing range of exchanges, whilst flawed, are capable for most small traders needs and AirSwap doesn’t really offer much to the low frequency low volume trader. However, AirSwap is not aiming to compete with IDEX, EtherDelta, Bancor or the 0x relayers.

The interest in AirSwap comes from what it potentially can be, which is to be the trading platform of choice for large investors looking for over-the-counter (OTC, i.e. securities that aren’t traded on a formal exchange) trading. This leaves AirSwap squarely targeting the institutional market. This is a source of opportunity given institutional money is only just starting to enter the market in earnest, although the OTC market is already large.

Details are hard to come by but some estimates have it as matching, if not exceeding, the daily volumes of regular exchanges already. Tim Swanson, formerly of R3, listed OTC providers such as Cumberland (DRW), Jump and Circle as being the cryptoasset related companies with the highest revenues per employee – not a more recognisable company such as Coinbase.

AirSwap is a fit for large scale OTC trading because it facilitates:

  • Dark Pool Trading: Market Makers (those who place orders for a specific price) can trade without their orders being publicly visible. This is particularly important if placing large orders, as it prevents others from front running (which is where another party takes advantage of the order and jumps in ahead of you to capitalise on it)
  • Information symmetry: Centralised exchanges (bots/exchange itself) and DEXs (miners taking advantage of blockchain latency) both suffer from a small number of actors being able to access and act upon order information ahead of the wider market
  • Feeless and scalable: Unlike other DEXs, AirSwap does not have a blockchain based order book. Trades are peer to peer. This enables AirSwap to allow feeless trading, an unsurprisingly attractive proposition for those engaging in high frequency trading (HFT)
  • Ease of use: AirSwap removes the brokers (and associated fees) and increases the likelihood of finding trading partners across disparate markets. There is no third party or middleman and assets remain in the hands of their owners at all times, never passing through an intermediary

Whilst it is launching with the intention of trading solely ERC20 tokens, the team has acknowledged there is nothing to prevent the system expanding in use to cover a wider range of cryptoassets as crosschain protocols are implemented.

 The Partner Network will expand AirSwaps reach

The Partner Network will expand AirSwaps reach

AirSwap is also working on attracting new partners to the AirSwap Partner Network. This would allow for a greater set of takers to enter the AirSwap network. The team list wallets, portals, portfolios and social networks as potential apps that would be relevant.

The AirSwap team have set themselves an ambitious goal of c. $250m daily trading volumes but stated that “if we are able to garner institutional trading volumes, I would estimate we can double that volume”. Accepting that the comments were made when daily trading volumes were higher, attaining this level would still leave AirSwap as a potential top 10 exchange. Given the low daily trading volumes of other DEXs (usually sub $10m), $250m feels a difficult target without institutional capital. 

How does it work?

AirSwap is based upon four elements which are broken down in the Swap protocol whitepaper:

Peer Protocol

 The peer protocol facilitates trades

The peer protocol facilitates trades

The peer protocol is just a quick way for a maker and a taker (the counterparty to the aforementioned maker, the taker takes and fills the best price currently available on an order book rather than setting a specific order price they want) to negotiate and fulfil an order. Simply put, the market taker fills an order set by a maker. This is outlined below.

Indexer Protocol

This is an off-chain service (meaning that it does not take place on the blockchain and thus saves fees) which aggregates and matches participants based on their intent to trade. The Indexer combines all prospective makers who have signalled their intent to trade and then matches a taker to them. Once matched with a maker, the taker and maker then use the peer protocol to conclude the trade.

Oracle Protocol

Another off-chain service, the Oracle protocol provides pricing information to both makers and takers. Makers can ask the Oracle for what a fair price suggestion is prior to pricing; takers can do likewise having received a quote. This helps both sides make more educated pricing decisions given there is no order book to compare a ‘fair’ value against.

Smart Contract

The smart contract is what enables both parties to conclude the deal and let them swap tokens (e.g. Maker sells ETH for the takers AST) through what is known as an 'atomic swap'.

Take as an example my wish to trade AST for ETH. I would query the indexer protocol to see which makers had signalled their intent to trade ETH for AST. I would then negotiate with them, using the Oracle to make sure it was a fair price, before accepting their offer. The peer protocol would then match our orders and we would then submit the order through the AirSwap smart contract which would conclude the deal. My AST would go to the maker; the makers ETH would revert to me.

Whilst the system sounds potentially clunky broken down as above, the user experience is not. You can watch AirSwap in operation here.

The team provided a comprehensive breakdown of the difference between AirSwap and their competition here. The main differences essentially come back to AirSwap operating offchain rather than on chain (saving on fees) and removing the order books.

How is the token used?

One of the greatest sources of debate around AirSwap is the usage and necessity of its token, AST.

In short, AST is needed because:

  • Market participants have to hold AST to signal their intent to trade
  • A participants AST is locked up for the duration of the trade before being returned at its conclusion
  • The number of AST required to stake for a trade is proportionate to the frequency of trading (but AST holders will be able to vote on how many is needed to hold to avoid a situation where it becomes too expensive to buy AST and therefore prices people out of trading on the exchange).
  • The system could function without AST, but if there was no disincentive (e.g. no need to hold AST) then there would be nothing preventing malicious attackers spamming the indexer protocol

The team also raised the possibility that they would introduce future services that would only be available to AST holders, such as premium tools for trading.

How viable is the project?

The project is on the cusp of launch, with a private beta having been in operation since March. There is also a mobile phone app in development. It is a Consensys backed project, has Joseph Lubin (Ethereum co-founder and CEO of Consensys) and Bill Tai (a technology focused angel investor and a lead investor in Bitfury) as advisors, in addition to Novogratz. The technology is capable and the use case realistic.

All that is needed is the liquidity to make this system viable for large players. Building these partnerships and onboarding institutional money is key to the systems success.

To this end, AirSwap has worked with Galaxy Investment Partners, the Mike Novogratz (former hedge fund manager at Fortress Investment Group and an advisor to AirSwap) led investment firm which focuses on digital assets and blockchain technology. Novogratz’s firm is purportedly providing the initial liquidity for the platform, although I haven’t been able to find confirmation from either AirSwap or Novogratz on that.

The team also announced that they had three ‘professional liquidity partners’ using the platform in the recently launched beta. Co-founder, Michael Oved, worked at Virtu Financial, a large HFT and market making firms. These are significant advantages to forming a large, single and global liquidity pool. It is impossible to know if they will achieve it but I think AirSwap are as well placed as anyone in the space to do so.


AirSwap launched to a fair bit of hype and fanfare last October but has dropped in value vs both BTC and ETH (c. 0.7x vs ICO price). If this article had been written just two days ago it would have been in the negative vs USD (as it is, it sits at around a 15-20% premium vs the ICO price (c. $0.35 vs $0.3).

With a market cap of just $50m it looks cheap relative to other projects. It remains 80%+ off its ATH and was one of the worst hit ‘decent’ projects in the recent crash, peaking at around 92% off ATH. Nominal competitors such as Kyber Network ($175m), 0x ($375m), Bancor ($141m), Loopring ($350m) all dwarf the project.


AirSwap does not face quite the same competition as these DEXs, as it has a potential niche to target that the others do not.

The biggest question with AirSwap, as it is with so many projects, is as to whether it can attain the user mass necessary to make it a success. There is no way to know this. What we do know is that:

  1. It has backing from an influential firm which should be able to provide liquidity and awareness, as well as perhaps the most important Ethereum focused company (Consensys)
  2. The team has delivered at every stage of the roadmap, has been impressive and clear in their communication and generally inspired confidence throughout
  3. If they are successful in attracting institutional/OTC money then the current valuation would see significant growth (50x +)

I see AirSwap as similar to a project such as Request Network, where investor understanding and interest in the project lagged behind the progress the company was making. Projects like this are good if you are happy buying and holding, trusting that the market will catch up.

AirSwap is likely launching on the 25th April, making it a potentially good entry point given the low valuation relative to past performance/competitors and the runup in price that often accompanies a forthcoming launch.

Disclaimer: I purchased AST recently and am currently holding.

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The biggest competitive advantage?

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