Payment guaranteed polynomial exchange rate scheme and its application to cryptocurrency swaps

Abstract

In this paper, we introduce a scheme, called Polynomial Exchange Rate Scheme (PERS), to generate exchange rate functions for token swap systems, and show that the functions generated are consistent, stable, and resilient. We show that payments are guaranteed in PERS if the Single Circulation Source principle is adopted (i.e., PG-PERS). Compared to the existing deposit-based exchange rate schemes, PG-PERS is a scheme that requires no initial key token deposit and its price changes have relatively stable rates especially in extreme cases. As an application of PG-PERS, we present a token swap service, called Fanco Swap, for swapping the ERC20 token used on aFan, an incentivized social media platform, and Ether coin. We also cover several practical issues such as precision and computation cost problems and the solutions to them, which adopted in the implementation of Fanco Swap. The paper contains a comprehensive survey on existing cryptocurrency exchange services and their pricing mechanism, followed by a formal development of the proposed exchange rate scheme and its comparison with one of the most representative existing exchange rate schemes.