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Tokensoft Wrapped & Kadenaswap - the Future of Digital Value
7 minutes read

Tokensoft Wrapped & Kadenaswap: the Future of Digital Value

Tokensoft Wrapped and Kadena have announced a partnership to bring Wrapped tokens for BTC and ETH to the Kadenaswap DEX in early Q2 2021, following the launch of our live mainnet beta, “Bountyswap”. What does this mean for the road ahead?

Kadenaswap: a Multi-Chain, Multi-Protocol, Multi-Platform DEX

Kadenaswap leverages the scalable Proof-of-Work architecture of the Kadena blockchain to ensure that the DEX can scale to handle any amount of trading volume. No matter how fast a single-chain architecture is today, if it can’t scale to multiple chains, it will inevitably hit a brick wall. When utilization peaks, it will face the exact symptoms we see on Ethereum today: slow performance and crushingly high gas costs.

Plus, as a Pact smart contract, Kadenaswap will eventually expand to include other platforms like Cosmos and Polkadot, using the same techniques that will power multi-chain liquidity on the Kadena platform alone.

This is why Tokensoft Wrapped chose Kadena to provide valuable wrapped protocols like BTC and ETH to Kadenaswap, with more protocols planned, all backed by Anchorage Digital Bank to ensure custodial security of the wrapped tokens.

Kadenaswap’s unique ability to become a single clearing and settlement platform across multiple platforms serves to accelerate Wrapped and Anchorage’s vision of bringing institutional-level liquidity to the crypto markets: clearing wrapped positions across chains as they move from one platform to another.

A liquid and diverse DEX market

In addition to Tokensoft kBTC and kETH Wrapped tokens, other protocols will also trade on Kadenaswap:

Kadena-Native Tokens (KDA). Any fungible token that launches on the Kadena platform will be able to trade on Kadenaswap immediately, in the same manner as ERC-20s on Uniswap, Curve, etc.

Kadena Chain Relay Tokens (DAI). Kadena will launch the Kadena Chain Relay, a decentralized bridge to connect Kadena and the Ethereum platform. This will allow any asset on Ethereum to be wrapped on Kadena, and will also allow KDA and other Kadena fungible tokens to be wrapped onto Ethereum. This will initially target a few high-value protocols, such as MakerDAO’s DAI token, to launch on Kadena in wrapped form. The bridge security will be provided by the upcoming Kadena Chain Relay program where node operators and others will collectively bond the security of the tokens using KDA and other protocols.

Celo Bridge (CELO, CUSD). The Kadena chain relay will also service a bridge between Celo and Kadena to allow Celo-native tokens and Kadena Fungible Tokens to interoperate, bringing CELO and CUSD onto the Kadena platform and Kadenaswap.

Terra Bridge (LUNA). The Kadena chain relay will start to interoperate with the Terra ecosystem to bridge LUNA and other Terra protocols onto the Kadena network.

Polkadot/Kusama: Plans are in development for building a bridge to Polkadot/Kusama networks to bring native assets into Kadenaswap.

Scaling Liquidity Across Chains

As a scalable POW platform, Kadena has all the security and transparency of the Ethereum environment, without the astronomical gas prices that are depriving DEX users of value. Kadena’s scalability comes from its unique sharded architecture where multiple independent POW chains interoperate to offer superior security and throughput. Launched with 10 chains, Kadena scaled the platform to 20 chains in August 2020, doubling throughput. The platform can continue to scale to meet demand, whether that’s 50, 100 or 2000 chains!

To fully leverage this capability, the Kadenaswap DEX will provide incentives to liquidity providers to balance liquidity across chains for assets in high demand. This allows Kadenaswap to scale gradually as needed on an asset-by-asset basis, enabling liquidity providers to plan ahead for asset allocation across chains and reap the rewards through greater fees and other incentives.

Kadenaswap and KDA

Backing the multi-chain system is the KDA token, which like any native fungible, is available on all chains. Kadenaswap is a “constant product” DEX in the model of Uniswap, which means that for any asset to be tradeable, it has to be in a pair with another liquid asset. While assets don’t necessarily have to pair with KDA, it will always be one of the most liquid pair components, similarly to ETH/wETH on Uniswap.

In this manner, Kadenaswap can impact the economics of the KDA token. This is where KDA, as a Proof-of-Work token, is superior to a Proof-of-Stake platform token. KDA’s liquidity serves to benefit Kadenaswap, which in turn drives value to the token, a virtuous cycle. The mechanism for KDA’s liquidity is POW mining, which is entirely independent of Kadenaswap or other on-chain uses for KDA.

With a Proof-of-Stake token, the value of the token and its liquidity directly impacts security. If an on-chain DEX provides higher rewards for the staking token, this starts to compete with staking as a source of income. While sufficient bonding can ameliorate the problem at a platform level, products leveraged on the platform token amplify that risk to the point that “rational altruism” is presumed, where whales will have the platform’s best interests at heart. It’s a security problem for the platform and a liquidity problem for the DEX rolled into one.

Kadenaswap will never have these issues due to the independence of the KDA platform token from any application on the platform. Liquidity and security are both assured from the get-go. KDA is an excellent token for financial engineering, such as synthetics and derivatives, that benefit from an independent and unshakeable liquidity regime.

The future: one DEX, many platforms

POW is more secure than any other layer-1 protocol, and Kadena is the only platform to scale it. Still, the future is multi-platform, whether that’s Proof-of-Stake platforms or other consensus regimes. For this reason, we’ve always sought to ensure that our ecosystem has multiple paths to interoperation across other innovative networks seeking to take blockchain into the future.

Key to Kadena’s interoperability is our open-source smart contract language Pact. It already makes working with the multi-chain Kadena environment effortless and safe, thanks to the security of Formal Verification and inherent advantages like interpreted code and gas-efficient native functions. Today, Cosmos devs can build using Pact on Kadenamint, and we’re working to bring Pact as a native language to the Polkadot/Kusama ecosystem with Pact Core.

By being natively multi-chain, Kadenaswap has the ideal laboratory for scaling a DEX without fragmenting the market. Thanks to Pact, these techniques will then apply equally well to scale to other leading platforms like Cosmos and Polkadot.

We’re excited to bring this vision to market, and invite you to participate in our incentivized mainnet beta, Bountyswap! Get involved at the “ground floor” and discover how Kadena is leveraging the only scalable POW platform to turbocharge digital value.