Traditional stock market trades can leverage the concept of atomic swaps to facilitate direct stock-to-stock trades without requiring cash positions.
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Atomic Stocks Overview
In traditional stock exchanges, retail investors in public markets are unable to switch from one position to another without first going into cash. For example, an investor looking to trade his or her Amazon shares for PayPal shares must first exchange these Amazon shares for U.S. dollars, before buying PayPal shares with these dollars.
This style of exchange creates unnecessary friction and expense because of a) transaction costs incurred on the sale of the asset, as well as on the purchase of the new asset; b) U.S. dollar purchasing power exchange-rate risk; and c) transaction fees paid to the broker that the purchaser is using, as well as the bid-ask spread that exists for each publicly traded stock (which occurs on both the sale of the previously held asset, as well as on the newly purchased asset).
Atomic Swaps
In the context of cryptocurrency, atomic swaps are a proposed feature that could allow direct conversion between two cryptocurrencies without having to use a third-party intermediary or exchange. By employing hash time-locked smart contracts, atomic swaps guarantee that parties will deliver the currency needed for the trade, or else the transaction is automatically canceled. These “all or nothing” trades preserve atomicity[2] because they either take place or are canceled immediately. For example, customer A could directly trade his or her bitcoin for customer B’s ether with full confidence that the trade will either take place or terminate if either party doesn’t deliver their side of the bargain.
Atomic Stocks
Harnessing the principle of atomic swaps, direct stock-to-stock exchanges (Atomic Stock Exchanges) enable retail investors to avoid the forced conversion into
