Token Swaps in Raiden

Use Cases

Pay Target in Token Not Held by Initiator

A merchant wants to be paid in DAI to avoid exchange rate risks for crypto currencies. The buyer only has WETH in his wallet. The buyer can use his WETH to pay, a mediator will swap the WETH to DAI and the merchant will receive DAI.

Exchange Tokens Held by User

A user has WETH and wants to buy RDN without going onchain. He already has a channel for both WETH and RDN. He can use Raiden token swaps to do this. This might be the same operation as above, since he could pay himself in a different token.

Increased Liquidity by Combining Networks

Even if no suitable route to a target can be found within a token network, there might be a route between initiator and target when funds are allowed to move through a different token network for a subset of the path. This will only be useful if the swaps are very cheap.

Earn Fees by Providing Token Swaps

In addition to providing normal mediation, mediators can also choose to act as an exchange between different token networks. The mediator will have to explicitly accept the legal risks and choose reasonable exchange rates.

Migrate Between Contract Versions

Raiden does not provide upgradable contracts. When deploying new contract versions, the only way to move the liquidity in the old contracts to the new ones is to close the existing channels and open new ones in the updated contracts. Doing that will incur high gas costs once the Raiden Network has many users.

This can be mitigated by having some mediators open channels in the new contracts while keeping their old channels open. Then these mediators can mediate payments between the old and new networks.

This will require support for multiple token network registries in the client. As a consequence, multiple token networks for the same token also have to be supported.

Transfer Tokens Between Different Blockchains

As long as the HTLs are compatible, a payment can work across any number of different blockchains. A Raiden payment can be used to swap between BTC, tokens on Ethereum, tokens on sidechains or other blockchains.

Compared to the other use cases, this brings additional problems, since the PFS will not be able to find routes outside of Ethereum and we will have to coordinate with non-Raiden clients. As a consequence, this should be left out of the initial implementation. But we should keep it in mind, so that we don’t accidentally make it harder to add support for this in a later step.


Choosing Exchange Rates

For many token pairs, the exchange rates will change too frequently to allow manual rate updates.

Possible approaches: * Provide an API where exchange rates can be updated * Include code to fetch exchange rates from external sources in Raiden

As a safety measure, we should save the timestamp of the last exchange rate update and not allow swaps when the rate is too old.

Communicating Exchange Rates

Users expect the PFS not only to return a working route, but also to return a cheap route. To do this, the PFS needs to know about exchange rates when planning a route.

Possible approaches: * Push: Mediators broadcast exchange rates, like they do with fees (high traffic) * Pull: Mediators broadcast the supported tokens (or token pairs?). Exchange rates are requested by the PFS as needed. This increases the path finding latency. * Relative rates: Mediators broadcast rates relative to a well respected source of exchange rates (e.g. Uniswap + 3%)

An additional problem is the handling of slippage. When exchanging large amounts of tokens, the exchange rates should get worse. To a certain degree, this is taken care of by increasing imbalance fees, but that might not be sufficient.

After a mediator made a token swap, the payment should be forced to succeed or fail quickly. Otherwise a considerable free option problem will arise.

Finding Routes Through Multiple Networks

Currently, the PFS handles each token network separately, which prevents it from finding routes across different token networks. Implementing support for cross-TN-routes requires some changes to the data structures used in the PFS. Doing this naively will result in slow pathfinding, since the combined graph of all token networks grows large quickly.

Supporting Multiple TokenNetworks Within a Single Payment

Raiden currently expects payments to stay within one token network. To make this work we need:

  • Changes to the REST API (prefixing a payment with the TN address does not work, anymore)

  • For migration between contract versions: support for multiple TN registries and multiple TNs for same token

  • Definition of the payment route has to include additional information (like token network contract for each hop, assumed exchange rate per mediator…)

  • … (Please add more here!)

Modular vs. In-protocol Approach

As of the last discussion nearly all of the features above can be implemented in two different design approaches:

  • Modular Approach - using existing functionalities and combining them

  • In-Protocol Approach - the protocol can natively handle new features

In the following the two design approaches are described on the example of multi token network payments.

Modular Approach

The modular approach aims to keep the Raiden core protocol lean and simple. This should keep the Raiden protocol robust. Less features introduce less edge cases which would have to be taken into account. This all would lead to less potential exploits in the core codebase. Depending on the feature to be implemented proxy smart contracts and off-chain controlling modules would have to be implemented to compound the Raiden core functionalities to a more powerful feature. These proxies and modules communicate with each other and control a classic Raiden node.

Modular Multi Token Network Payments

If the Raiden protocol were only be able to handle single token payments another idea is to assemble a multi token payment by initiating multiple payments. This would require the mediator who exchanges into a different token to accept a payment and forwarding it by initiating a next payment as defined by the PFS. A controlling module must understand that for the incoming payment the mediator is not the payee rather than a mediator. This results in two conditions:

  • The mediator must not trigger a secret request (or at least will not receive an answer)

  • The next payment must be initiated with the same secret hash as the incoming payment

The control module is responsible for forwarding the payments and contains the logic of handling and accepting mediation. A user can easily place his desired exchange rate. The module coordinates between the PFS and verifies that the current payment is acceptable to the user’s desired exchange rate.

In-Protocol Approach

The opposite approach implements this feature directly into the protocol such as payments can be forward to channels from a different token network.