Polkaswap is a non-custodial AMM-DEX protocol for trading tokens across the Polkadot network, parachains, and blockchains connected via bridges. The Polkaswap protocol effectively removes trusted intermediaries and offers the opportunity for faster transactions. Polkaswap is open-source software licensed under Apache V2.
Polkaswap is a DEX that can set up multiple liquidity sources based on a liquidity aggregator algorithm. When a trader invokes the swap function, the liquidity aggregator algorithm executes the order using the best quote provided by liquidity sources. These sources can be represented as AMMs, order books, or other algorithms. As Polkaswap is an open-source project, its possible to add more liquidity resources through community-driven development within the Polkaswap module.

The Polkaswap token (PSWAP) enables users to create liquidity on token pairs in the Polkaswap DEX: so-called liquidity staking. Trading fees are used to buy back and burn PSWAP tokens and mint new PSWAP tokens to reward liquidity providers. The PSWAP token issuer will be a smart contract that allocates PSWAP according to programmed logic and incentivizes the growth of Polkaswap. Additionally, XOR tokens will be used to pay for network transaction fees.
PSWAP tokens leverage a token deflationary model to incentivize liquidity providers. A 0.3% fee from every trade on the Polkaswap DEX is used to buy back PSWAP tokens. A portion of these PSWAP tokens is allocated to liquidity providers, while another part is burned to reduce the token supply. Initially, 100% of the bought-back PSWAP tokens are allocated to liquidity providers, but this percentage decreases over time as more tokens are burned.