By Larry Wright
If you are into cryptocurrency, you might have heard about the token swap. The massive success of the cryptocurrency business is partly due to the ability of entrepreneurs to innovate. Cryptocurrency has altered the economy in various ways while facilitating the management, storage, purchase, and usage of digital assets by reducing complexity and streamlining operations. Token swaps are among the more exciting initiatives in the cryptocurrency sector that has recently received a lot of traction. We’ll go through how token swaps work and how they integrate into the cryptocurrency industry as a whole in this token swaps guide.
Cryptocurrency has significantly enhanced user experiences while also removing the complications associated with digital currency in its early phases. The primary goal of token swaps is to reduce the overhead costs related to crypto-asset exchange and the time required to complete the exchange. Even though token swaps appear to be a pretty straightforward concept, many people cannot provide a satisfactory answer to the question “what is a token swap.” The talk that follows will assist you in developing a more fundamental knowledge of this concept and how they work.
Token Swap And Its Definitions
For any guide on token swaps, one of the most important aspects would be to place a strong emphasis on locating answers to the question “what is a token swap.” It is practicable to transfer crypto from one blockchain (network) to another through a technique known as token swapping or token migration.
A token swap is a joint event when a particular project uses one blockchain to raise funds and then transfers its digital tokens to the project’s proprietary blockchain after launching the project’s mainnet, known as the mainnet launch. On the other hand, Blockchain projects may choose to transfer to a different blockchain network for a variety of reasons, including cost. As a result, it is apparent that in the cryptocurrency space, token swaps have 2 distinct definitions.
The First Definition Of Token Swaps – Direct Crypto Trades
The first definition focuses on the instant exchange of crypto without the need for a cryptocurrency-to-fiat conversion. As of right now, there are a variety of cryptocurrency exchange services available on the market, allowing users to buy and sell cryptocurrencies in exchange for other cryptocurrencies or traditional currencies.
In contrast, limited liquidity and fewer trading pairings on every exchange incentivize customers to trade directly between two crypto currencies. Some less-known tokens cannot attain this capability since they are only available on a limited number of cryptocurrency exchanges.
Users should incorporate the intermediate step of cryptocurrency-to-fiat conversion or the conversion of less known cryptocurrencies into popular cryptocurrencies such as Ethereum or Bitcoin in their trading process, rather than trading directly.
On the other hand, certain exchanges directly address this issue through token swaps, which are made possible through the pooling of numerous exchanges. Furthermore, the exchanges obtain liquidity from various exchanges to facilitate the straight swapping of two cryptocurrencies without any trouble.
The exchanges may also be able to eliminate the problems associated with multiple fees incurred when transactions are completed in two different processes. In addition to Metamask, AirSwap, and ShapeShift, many other significant services on the token swap list provide these features.
The Second Definition of Token Swaps- Migration Of Projects
Another significant definition emphasizes the migration of entire projects or cryptocurrency exchange platforms from one blockchain to another, which is common. In such circumstances, the projects will be forced to meet some stringent coin exchanging specifications.
Depending on the unique token standards used by the project, it may be necessary to switch to a different blockchain platform. Developers should guarantee that the indigenous token of the project may be swapped for other tokens supported by the new blockchain (network) platform. In other words, the method provides .an apparent response to the question “what is token swap” in the crypto sphere.
Beyond their primary function as decentralized digital money, certain coins such as NEO and Ether provide a secondary function. Such cryptocurrencies also allow users to launch new crypto tokens on their blockchains, a valuable feature. These second-layer tokens would operate on the underlying platforms while benefiting from the popularity and security afforded by the cryptographic platforms.
As an outcome, the second-layer tokens may save time and money by avoiding starting from the ground up when creating a new ecosystem. On the other hand, relying on a powerful bitcoin blockchain platform has significant drawbacks, as previously stated. For example, the infrastructure may be insufficient to meet the needs of the developers as they currently exist. A token swap will save the day in such situations, assisting developers in transferring their tokens (coins) from one blockchain to another. Simultaneously developers could keep track of all of the address balances in their system.
How Do They Work?
Here, we will concentrate on the direct crypto trades (first definition) of a token swap. In addition to the usage of smooth crypto-to-crypto exchange services, this eliminates the need to convert a digital asset to fiat currency before utilizing the fiat to purchase your preferred coin, which is a time-consuming and frequently inefficient method of doing so. Typically, this strategy provides a more specific entry point into cryptocurrencies with small market capitalization.
In the case of the COMP coin, if you wish to trade it for ZIL, you will most likely find it challenging to find an exchange that offers the COMP/ZIL trade pair because they are pretty scarce. Therefore, you may need to exchange your COMP assets for fiat money or other recognized coins such as Bitcoin, Ethereum, and USDT first. With the help of this service, you may trade popular cryptocurrencies or fiat directly into ZIL.
Surely you’ll agree that this is a time-consuming and inefficient approach. For such a trade to be executed successfully, you would be required to pay trading fees at least twice. In addition, it is impossible to predict how price volatility would affect the profitability of trade in advance. It’s worth remembering that the prices of cryptocurrencies are frequently fluctuating. Therefore, the strategy described above may make it more challenging to obtain your ideal price entry point.
Given these disadvantages, exchanges, digital wallets, and other cryptocurrencies platforms began introducing instant swap functionality due to these developments. Users will be able to exchange one crypto product for another using this method directly. You have to enter how many crypto coins you want to trade and the trading pair you want to use, and the token swap service will process and exchange your coin in real-time. When using this method of transacting, you have to pay processing fees on a single occasion.
Platforms that support token swapping provide a straightforward and safe crypto-to-crypto gateway: you may conduct all of your exchanges from either a custodial or a non-custodial wallet, depending on your preferences. Sometimes, depending on the strength of your digital wallet, there are chances you may not require to transfer your crypto coins to an exchange or crypto swapping service to use the quick crypto-to-crypto exchange function.
Wallet providers frequently include crypto swapping services, which allow customers to securely convert their coins from their private wallets to another cryptocurrency. Essentially, the benefits of using a crypto switching service are their simplicity, quickness, price, and security, among other things. Some companies even go so far as to allow consumers to purchase bitcoins using their credit or debit card. Exchange platforms such as Changelly, Shapeshift, ChangeNow, and Simpleswap is just a few examples of systems that provide dedicated crypto switching services.
Wallets and exchanges have also begun to develop their own switching services within their own platforms. Furthermore, the DeFi fever that swept the world in 2020 fueled the development of DeFi token swap solutions. At the moment, a similar tendency is sweeping over the non-ferrous metals sector. When it pertains to token swaps, the possibilities are nearly limitless.
Because of the expansion in the number of exchanging services, it has become more vital to conduct thorough research before deciding on one. One thing to keep an eye out for is the existence of a diverse range of cryptocurrency pairs, the platform’s security prowess, and the speed with which cryptocurrencies are swapped. It is important to note that a fast pace eliminates the potential of slipping.
The fact that some providers eliminate slippage by delivering set swap rates that are maintained from the beginning of a transaction to its conclusion should be noted. The only essential consideration of such deals is that you may be required to pay a greater transaction fee due to the higher transaction cost.
Token Swaps’ Advantages
The value of token swaps at the time of writing is the next critical thing to consider while comprehending them. The various entries in the token swap list that have successfully exploited the perks of token swapping clearly demonstrate the worth of the practice in multiple ways. The following is a summary of some of the most significant value benefits of token swaps.
Easy-to-Use Crypto Trading System
According to the industry standard, platforms that provide token swapping capabilities are typically used as a fast, flexible, and highly reliable crypto-to-crypto trading gateway. The platforms allow for the exchange of cryptocurrency from either custodian or non-custodial wallets.
Moreover, some wallets do not necessitate the transfer of coins to cryptocurrency switching exchanges or services prior to granting access to crypto-to-crypto trades through their interface. The wallet often integrates token swap services in order to provide customers with greater flexibility when converting money from personal wallets in a secure manner. Consequently, token swapping is becoming a widely accepted notion in the cryptocurrency ecosystem, and for all the right reasons.
Token Swap Increases The Value Of Crypto Trading
Token swaps are a suitable approach to enter the cryptocurrency trading market for a variety of reasons. They provide increased liquidity since users can use their tokens to purchase other tokens, improving their overall value. Because the token swap mechanism and associated transactions are preserved on the blockchain, users may be able to profit from the data integrity. Token swaps also provide the certainty of atomicity of the token transfer, which is not always the case with traditional swaps.
With the use of cross-chain token swapping, you may also be able to achieve more interoperability. The most noteworthy of these advantages is that the token swap smart contract could eliminate the need for a third-party service charge, resulting in a payout to an escrow. Therefore, token switching may prove to be more cost-effective in the cryptocurrency trading market.
As a result, the improved convenience, security, availability, and speed of token swaps are readily apparent, as are the value benefits of token swaps. Simpleswap is one of the solutions on the token swap list that provides a specialized token switching service, and it is included in the list. Many other exchanges services and wallets have already begun working on the establishment of in-house switching solutions of their own.
Furthermore, the DeFi movement, which gained traction in 2020, has resulted in the creation of DeFi token swap solutions, which are becoming increasingly popular. With the emergence of numerous token swapping solutions in the NFT market, similar tendencies have also been visible in the NFT industry. When it comes to token swaps, on the other hand, the possibilities are minimal.
What Are The Ways To Swap Tokens?
The process for a token swap varies depending on the technique of swapping used and the token pair that is picked for exchange. Additionally, you must decide whether you would use an exchange service for token switching or complete the task independently. The following is a breakdown of the many methods of exchanging tokens.
Using An Exchange To Swap Tokens
The most widely used token swapping method is granting authorization to a cryptocurrency exchange to administer the exchange process. For this purpose, the old tokens must remain in the wallet, and a new digital wallet must be established after the swap is complete, which will hold the newly exchanged tokens. Immediately following the completion of the swap, the wallet containing the old tokens is deleted.
When trading on the new token begins, users will choose whether or not to withdraw their funds or use them in trade. The exchange clearly gives a more convenient and less time-consuming alternative to performing a token swap on your own. Token swapping on exchanges is entirely transparent, and there are no hidden fees or costs involved. However, you could not trade with the current token to avoid any confusion with other deals currently taking place.
DIY Token Swapping
You can also take a do-it-yourself approach to token switching by trading any crypto asset on the token swap list with another. It’s worth noting that the DIY approach for token changing is virtually identical to the process used on an exchange. In order to use the coin, users must download a wallet from the platform or a person who is issuing it or register on the platform’s website.
Users would receive two wallets, one for the old product and the other for the new coin, with the old coin wallet being the default option. Following the operation’s completion, a credit will be applied to the wallet associated with the new currency or account. On the other hand, the manual approach of token switching may be related to a number of significant dangers.
The wallets and websites designed by token issuers expressly for token swap may be challenging to use for beginners. Furthermore, there may be conflicts between the capabilities and their specification and design during the process, which could be problematic. A minor oversight could result in irrevocable and permanent effects as a result of the error.
On the other hand, manual token swaps are a superior option for persons with a solid grasp of the cryptocurrency field. The manual token swapping procedure description provides a high-level overview of the manual swapping process in its entirety. In addition to the token pairings, other parameters influence the process’s different versions.
What Does Token Swap Services’ Future Hold?
While Bitcoin is still many new investors’ preferred crypto asset, their entrance into the altcoin market introduces them to the vast array of options available in the digital asset world. Token swap services join the fray at this point. They emphasized customer experience and put in place tools to help users who lack the technical knowledge required to browse crypto exchanges gain access to the altcoin market.
Token swaps services are expected to grow more popular as the crypto market moves closer to general use. This expectation, however, increases the pressure on providers to enhance their products. It is up to them to improve security, swap speed, and provide more user-friendly features.
Bottom Line
In the present crypto revolution, token swapping services are playing a critical role. They remove the most prevalent roadblocks to entry into the cryptocurrency market. These technologies can make it easier to access cryptocurrencies with a limited market capitalization in specific instances. There is strong reason to expect that token swapping will continue to play a vital role in the crypto market, owing to their straightforward, rapid, and less complex approach to digital coins exchange.