ERC-20 and BEP-20 pairs

2.2 ERC-20 and BEP-20 pairs

DEX Raiden v1 used ETH and BSC as a bridge currency.

Every pair included ETH or BSC as one of its assets. This makes routing simpler—every trade between QWE and XYZ goes through the ETH/QWE or BSC/QWE pair and the ETH/XYZ or BSC/XYZ pair—and reduces fragmentation of liquidity. However, this rule imposes significant costs on liquidity providers. All liquidity providers have exposure to ETH or BSC, and suffer impermanent loss based on changes in the prices of other assets relative to ETH. When two assets QWE and XYZ are correlated—for example, if they are both USD stablecoins—liquidity providers on a DEX Raiden pair QWE/XYZ would generally be subject to less impermanent loss than the QWE/ETH or XYZ/ETH or XYZ/BSC pairs. Using ETH or BSC as a mandatory bridge currency also imposes costs on traders. Traders have to pay twice as much in fees as they would on a direct QWE/XYZ pair, and they suffer slippage twice.

DEX Raiden v1.1 allows liquidity providers to create pair contracts for any two ERC-20s and BEP-20s.

A proliferation of pairs between arbitrary ERC-20s and BEP-20s could make it somewhat more difficult to find the best path to trade a particular pair, but routing can be handled at a higher layer (either off-chain or through an on-chain router or aggregator).