Sparkswap raises $3.5M to build an exchange on the Bitcoin Lightning Network

Quick Take

  • Sparkswap is building a non-custodial cryptocurrency exchange on the Lightning Network
  • The startup has raised $3.5 million from investors including Initialized Capital, Pantera Capital, and Foundation Capital

It seems like every other week we hear reports of a major cryptocurrency exchange hack and the millions of dollars stolen from traders.

Trey Griffith, founder of Sparkswap, has raised $3.5 million from investors including Initialized Capital, Pantera Capital, and Foundation Capital to change that.

The idea? A non-custodial exchange built by leveraging the scaling features and speed of the Bitcoin Lightning Network and Atomic Swaps

Griffith founded in Sparkswap in late 2017, leaving his job at a wealth management software firm. He was motivated to start Sparkswap after seeing the first Lightning Network-supported cross-chain swap between bitcoin and litecoin and hearing complaints from cryptocurrency traders.

“They’re just frustrated by the fact that it takes weeks to pull their money out,” Griffith tells The Block. “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.”

With Sparkswap, which is in beta testing on the Bitcoin mainnet, traders could make trades at speeds comparable to centralized exchanges like Coinbase and Gemini. 

Sparkswap has built out an easy to integrate API and command-line interface for traders with technical expertise to incorporate its technology into their backend. Eventually, Griffith notes, Sparkswap will build a platform that can support “less sophisticated use.” The firm’s initial target clientele are semi-professional to professional traders who want to develop their own custom trading software. “We think the professional traders are the ones that bring in liquidity,” Griffith adds.

The process to use Sparkswap is as follows:

  • A market maker first downloads and runs Sparkswap’s software
  • The maker then deposits litecoin or bitcoin into their respective wallets and connects to an order-book system managed by Sparkswap
  • The maker broadcasts their order to Sparkswap
  • Sparkswap connects the maker’s order to a market taker who wants to fill that order
  • Both traders execute their trades using Atomic Swaps

While Sparkswap initially only supports bitcoin-litecoin trading pairs, Griffith notes that his team is researching ways to enable trading for assets beyond litecoin, including zcash and ether. “We can support any payment channel network that looks like the Lightning Network,” Griffith tells The Block.

As to why Sparkswap is building a non-custodial exchange on Bitcoin instead of platforms like Ethereum, Griffith notes that it is fundamentally about “being able to support highly liquid trading pairs” and that bitcoin is most liquid cryptocurrency on the market.

To be sure, Sparkswap is not the only startup building exchanges on the Lightning Network. Just last week, Boltz announced the alpha release of its "instant, account free, and non-custodial digital asset exchange built on top of the Lightning Network."

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.