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Atomic Swaps

How Token Exchange Works

Section titled “How Token Exchange Works”

When you trade on bitCaster, the matching engine pairs your order with another participant. How the trade actually settles depends on the type of match:

Complementary vs non-complementary matches

Section titled “Complementary vs non-complementary matches”
  • Complementary match — a YES buyer is matched directly with a NO buyer. The mint can settle this on its own because the two positions perfectly offset. No swap is needed; the mint simply issues conditional tokens to each side.
  • Non-complementary match — for example, someone selling YES tokens they already hold to another participant who wants to buy them with sats. Here the two parties need to exchange tokens directly, and neither should have to trust the other to go first.

Why atomic swaps matter

Section titled “Why atomic swaps matter”

An atomic swap guarantees that either both sides of the trade complete, or neither does. This is critical for trustless peer-to-peer trading:

  • You never send your tokens hoping the other party will send theirs.
  • If anything goes wrong (the other party disappears, a network issue occurs), your tokens are automatically returned to you after a short timeout.
  • The matching engine relays encrypted messages between the two parties but never holds custody of any funds.1

How it works (simplified)

Section titled “How it works (simplified)”
  1. The matching engine pairs two orders and shares each party’s public key with the other.
  2. Both parties establish an encrypted channel using those keys.
  3. Each party locks their tokens so only the counterparty can spend them, with a time-limited refund path.
  4. A cryptographic link (adaptor signature) ties both locks together — claiming one side automatically reveals the secret needed to claim the other.
  5. The first party claims, which reveals the secret. The second party uses that secret to claim their side.

The entire process happens in seconds and requires no on-chain transactions — just ecash swaps through the mint.

Further reading

Section titled “Further reading”

For the full cryptographic protocol, see the technical specification.

Footnotes

Section titled “Footnotes”

  1. There is an exception to this: when a market creator supplies initial liquidity, they may deposit assets with the matching engine to bootstrap early trading activity. ↩