Note: A simplified version of our whitepaper can be found at the bottom of this page.
A whitepaper is a formal report about a specific topic and the problems that surround it.
Our whitepaper explains the issues and limitations that we believe are holding back BitClout’s growth as a platform. It also presents our planned solution to these problems.
However, if you’re like most people, you probably find it annoying to read official academic reports (and a whitepaper is basically a formal academic report).
That’s why I’ve put together this simplified version of BitSwap’s official whitepaper.
Even if you don’t know anything about cryptocurrency or decentralized finance, don’t worry. I’ll try my best to explain everything in simple terms so that even a complete beginner can understand.
And should you have any further questions, feel free to message our team in the BitSwap Discord channel. We’d be happy to answer your questions!
The problem with BitClout is that there is no readily-available method to withdraw BitClout into other currencies like US Dollars or Bitcoin.
BitSwap Beta (released April 10, 2021) allowed users to buy and sell BitClout for Ethereum by using an open ledger of sell listings and Ethereum smart contracts to facilitate safe transactions between two parties
BitSwap V1 Exchange improves on BitSwap Beta to allow for instantaneous exchanges and eventually, automatic matching of buyers and sellers
BitSwap V2 will develop into a decentralized exchange, wrapping BitClout as an ERC20 token and allowing for better liquidity, so you can instantly buy or sell BitClout
BitSwap V2 and subsequent projects will employ liquidity pools so anybody can become a liquidity provider and earn a yield (return) on their BitClout or ETH.
BitSwap V3 aims to implement a decentralized exchange for creator coins
Today, the main criticism against BitClout is the fact that there is no way for users to directly withdraw money from the platform. In other words, there is a lack of liquidity — the ability to quickly convert different assets (like BitClout) into cash.
As the platform grew, secondary BitClout markets emerged as users looked for ways to trade and withdraw BitClout. These secondary markets mainly took the form of over-the-counter (OTC) transactions conducted over platforms like Telegram and Discord.
Simply put, an OTC transaction is an exchange of assets between two people. For example, in secondary BitClout markets, users advertised listings for buying and selling BitClout. When a buyer and a seller agreed on a price, they completed the private transaction of BitClout for Bitcoin (or whatever currency that was agreed upon).
However, the fundamental restriction behind these OTC transactions was the requirement for both the buyer and seller to trust each other. Most times, a third-party escrow was involved — someone who took payment funds from both the buyer and seller to make sure that each person held their end of the transaction agreement. Yet, even these escrows could sometimes be scammers, and untrustworthy.
A BitClout exchange that replaces human escrows with an automated escrow, so that payments are timely, and neither the buyer or seller can scam each other.
That’s what we implemented in BitSwap’s Beta launch, first released on April 10, 2021.
BitSwap Beta uses the Ethereum and BitClout blockchains to provide an automated escrow service for the secure swapping of BitClout and Ethereum. Here’s a brief overview of how it works:
First, potential sellers of BitClout post listings on BitSwap’s Swap Feed, advertising the price and volume of BitClout they would like to sell. Potential buyers can browse the Swap Feed to find suitable prices at which they would like to buy BitClout.
When a buyer finds a listing they like, they initiate the swap by sending the specified amount of Ethereum (BitClout volume * price/BitClout * ETH/USD) to the provided BitSwap ethereum address that locks the ETH until the BitClout has been sent directly from the buyer. As soon as the contract receives the exact amount of ETH, it will automatically verify the validity of the deposit.
Once a buyer’s deposit is verified and locked within the BitSwap ethereum escrow, the seller is prompted to send the specified amount of BitClout directly to the buyer's BitClout public key.
Using the BitClout block explorer, the seller finds the transaction hash of the BitClout transfer and pastes this into BitSwap, which verifies the exact amount of BitClout and Public keys between both parties.
Once BitClout has been sent directly to the buyer, the BitSwap ethereum escrow releases the locked Ethereum to the seller, taking a 4% cut to cover ethereum gas fees. If at any time the swap must be cancelled, the ethereum is returned safely sent back to its original owner.
BitSwap Beta Architecture
The problem with BitSwap Beta was that it relied on the seller to directly send BitClout to the buyer, and verify it manually through finding the transaction hash in the block explorer.
The buyer would therefore have to wait for the seller to complete their portion of the transaction before they could receive their BitClout, which could cause many hours of delay.
With BitSwap V1, we solve these limitations so that once a buyer-seller pair is found, transactions are instantaneous.
First, sellers must deposit BitClout funds into their BitSwap account by sending BitClout to a @BitSwap custodian account.
Sellers can create listings to sell BitClout provided their BitClout balance is sufficient for the sale. You may withdraw BitClout from your BitSwap account at any time, whereby any invalidated sell orders are cancelled.
For buyers, sell listings are now sorted and filterable by volume and price, so it's easier for you to find appropriate listings. We also implement Web3 protocols into BitSwap for direct compatibility with browser wallets like Metamask.
When a buyer purchases BitClout from a BitSwap listing, BitSwap will automatically verify the transaction and instantly send the correct funds to both the buyer and seller.
After a successful transaction, BitSwap takes a 2% transaction fee and also charges a separate network/gas fee. For Ethereum, this gas fee is normally $4-$15 depending on network congestion. For BitClout, this gas fee is a couple cents.
To incentivize long-term growth of BitSwap, 100% of BitSwap’s BitClout fees will be reinvested back into the BitSwap coin. Ethereum fees will be used to fund the maintenance and development of the BitSwap platform, along with our future community projects.
We now also plan to implement buy orders and automatic order matching, so any order (whether a buy or sell order) can be automatically filled by a matching engine for faster transactions.
We will maintain price transparency by making all listings public, while also improving liquidity by automatically matching orders, instead of having users manually select an order.
BitSwap V2 is a decentralized exchange for BitClout. With a decentralized exchange, we pass on the governance and control of the platform to our users, rather than having the platform be controlled by the BitSwap team.
In short, BitSwap V2 will provide better liquidity to the exchange platform. This means your buy and sell orders will be completed instantly, without having to wait to find a buyer-seller pair.
We will also be employing liquidity pools, so anybody can earn a yield on their BitClout or ETH coins by contributing, or depositing into the liquidity pool. Coins can be withdrawn at any time.
The exact specifics behind BitSwap V2 can get a little bit technical, so if you’d like to learn more about the behind-the-scenes of BitSwap V2, you can read our full whitepaper.
BitSwap V3 aims to provide an exchange for creator coins, so users are able to safely sell their own (or other people’s) creator coins without needing to sell directly on the BitClout platform.
Currently, in order for creators to liquidate (sell) some of their coin, they must first convert their coin back into BitClout. However, doing so results in a decrease in their coin’s price and signals to investors that the creator does not believe in their own long-term outlook of the coin, which even though that isn’t always the case.
With BitSwap V3, we allow creators to liquidate (sell) their own coin with less coin volatility and investor backlash. By allowing creator coin exchanges instead of forcing creators to first convert their creator coins into BitClout (which lowers the value of their coin), BitSwap V3 helps creators benefit from the growth of their coin, while also ensuring even more long-term growth.
If you’d like to learn more about the technical specifics of BitSwap V3, please read the explanation in our full whitepaper.
This paper is for general information purposes only. It does not constitute investment advice or a recommendation or solicitation to buy or sell any investment and should not be used in the evaluation of the merits of making any investment decision. It should not be relied upon for accounting, legal or tax advice or investment recommendations. This paper reflects current opinions of the authors and is not made on behalf of BitSwap or their affiliates and does not necessarily reflect the opinions of BitSwap, their affiliates or individuals associated with them. The opinions reflected herein are subject to change without being updated.
Special thanks to Craig Clemens (@craig), Tekin Salimi (@tekin), Chris McCann (@mccannatron), Jake Udell (@jakeudell), Adrian C (@adrianc @wBTCLT), David Weisburd (@davidw), Paul Meed (@social_money @moonbounce), and Scott Sunarto (@smsunarto) for the suggestions and feedback.