ERC20 Swaps

ERC20 Swaps were designed by the developers in the Frictionless protocol to risk off permissionless stablecoins such as USDC or USDT.

Permissionless are a great innovation from the crypto markets which were designed for permissionless crypto referencing to US Dollars, however handling stablecoins for traditional institutional partners is still a risky proposition.

Using the ERC20 Converter contracts, FrictionlessFundDepositTokens can be converted to/from stablecoins using the Frictionless protocol to help Managers accept stablecoins whilst off-loading their associated risks, such as de-peg events, underlying community bank reliance and liquidity risks.

The PROTOCOL_TREASURY manages the on/off ramp of the ERC20 stablecoin, such as USDC/USDT within its fund structures of FRICTIONLESS MARKETS SECURITIES FT.

The availability of a valid configured ERC20 token for conversion to/from FrictionlessFundDepositToken along with the associated fees is transparent, any market participant may query the smart contract.

The principle of an ERC20 Swap is simple.

  1. The PROTOCOL_ADMIN defines the valid token pairs which are convertible on a 1:1 basis.

  2. Fees can be optionally defined for the conversion to/from the ERC20 token.

  3. The holder (Investor) of ERC20 tokens invokes the convertFromERC20function of the smart contract, the ERC20 tokens are sent to the PROTOCOL_TREASURY and a matching amount of FrictionlessFundDepositToken is minted and sent to the holder (Investor).

  4. If the Investor wishes to convert their FrictionlessFundDepositToken to a valid configured ERC20 token, such as USDC/USDT, then they can invoke the convertToERC20function of the smart contract. In this case, the PROTOCOL_TREASURY will receive the FrictionlessFundDepositToken and burn it, transferring the matching amount of ERC20 (less any fees) to the Investor.

An example of two live ERC20 swaps on the Avalanche C-Chain are;

In these swaps, you can observe the collection of optional fees and the atomic settlement of the swap of the fsUSD tokens with USDC into the PROTOCOL_TREASURY.

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