Sparkswap Secures $3.5 Million to Build a Decentralized Crypto Exchange on BTC’s Lightning Network

The cryptocurrency startup Sparkswap wants to become the first exchange based on the Bitcoin Lightning Network (LN). According to a recent report, Trey Griffith, the founder of the company, raised $3.5 million from investors such as Initialized Capital, Pantera Capital or Foundation Capital.

Sparkswap Raises $3.5 Million

During a conversation with The Block, Griffith explained that he founded the company back in 2017. At that time, he left his job at a wealth management software firm in order to develop Sparkswap. He said that he was motivated to start the firm when he saw the first LN cross-chain swap between Bitcoin (BTC) and Litecoin (LTC). He said that users were complaining about this.

On the matter, he commented:

“They're just frustrated by the fact that it takes weeks to pull their money out. By building Sparkswap on Lightning Network Atomic Swaps, we can get performance and currencies needed to build liquid markets without giving up control of your assets.”

At the moment, the new exchange is in beta testing on the Bitcoin mainnet. Traders can also exchange their coins at similar speeds to Coinbase or Gemini, other exchanges in the space. Additionally, Sparkswap has built an easy to integrate API and command-line interface. In the future, the intention is to support “less sophisticated use.”

After the seed round, the firm is going to open its trading activities for the public. The transactions are going to be exclusively between Bitcoin and Litecoin just to test the software. Nonetheless, they are also analysing the possibility to include other virtual currencies such as ZCash (ZEC) and Ethereum (ETH), large players in the crypto market.

Moreover, users in the platform have a $2,500 trading limit for the first few months. They want to increase the limit in the future as well. A partner at Initialized Capital, Brett Gibson, said that Sparkswap was the first platform that offers users self-custody and good speed for their trades.

In general, decentralized exchanges had several problems with the user interface because it became very difficult for traders to perform seamless transactions and trades. Centralized exchanges remain the largest in the market due to this reason. That’s one of the reasons why Sparkswap could be revolutionary in many ways.

Meanwhile, Paul Veradittakit, from Pantera Capital, explained that Sparkswap focuses on Bitcoin rather than on Ethereum and ERC-20 tokens.

There are many issues that will have to be analyzed by Sparkswap before being able to release a final version of the exchange. For example, what would happen if there is a party that pulls out of a trade because the price fluctuates?

Sparkswap could push the Lightning Network toward a larger number of transaction uses. At the moment, the Lightning Network works as a gateway for processing microtransactions rather than larger sums of funds. Currently, the average lightning channel capacity is less than $200.

There is another firm that is workin on a crypto exchange on top of the Lightning Network. Boltz has released its instant, account free, and non-custodial digital asset exchange powered by the LN.