The on-going progress in the cryptocurrency industry is geared towards innovating and providing better solutions for securely and safely interacting with digital assets. Undoubtedly, it is evident that the crypto economy has significantly impacted various mainstream industries across multiple economic sectors. The relatively seamless procedures of storing, accessing, and purchasing digital assets have improved customer satisfaction and limiting complexities associated with crypto transfers, thus improving the overall user experience.
Token swaps is one of such innovations in the crypto space that premised this ideology. Seamless crypto trading, improved liquidity, reduced fees, and increased transaction speeds are some of the benefits associated with token swaps. Although the concept behind token swaps might seem very simple, many individuals still struggle to find a simple explanation as to what a token swap is, and we bet you found this piece attempting to get a better grip on token swaps.
In this regard, we will be looking at what a token swap is, how it works, ways to swap tokens, benefits/potential risks, and examples of solutions offering dedicated crypto-swapping services.
Let's dive right in…
What are Token Swaps?
Quite simply, a token swap refers to the transfer of digital tokens from one blockchain to another. The most simple case of token swaps can refer to a direct and instant exchange between two crypto assets without having to first convert to a fiat currency. This is often facilitated by dedicated platforms for such activities or integrated as a functionality of crypto wallets.
The other token swap scenario occurs when a project utilizes one blockchain to raise funds and then decides to migrate its tokens to another proprietary blockchain after launching the project on its mainnet.
While this is a common reason for migrating to a separate blockchain, blockchain projects may decide to migrate to a different network for various other reasons. For instance, Storj network migrated from Bitcoin to the Ethereum network back in 2017 when they discovered Ethereum provided improved scalability compared to Bitcoin.
In these migration scenarios, the project development team will have to provide its users & investors with the necessary means required to exchange the project's native token for another token compatible with the new blockchain network.
How Do Token Swaps Work?
Before cryptocurrencies went mainstream, crypto trading was more complex and time-consuming as you will be required to convert your crypto assets to fiat for most trading activities. For instance, suppose you have MATIC and wish to trade them for SPL. You will discover that a MATIC/SPL pairing may be hard to find. This means you will be forced to trade your MATIC tokens for a fiat currency, then exchange your fiat for SPL. Besides the obvious hassle in this process, associated costs of the transactions could be discouraging, particularly considering the volatility of the crypto market may impact the profitability of the trade.
This was one of the earlier challenges that confronted the crypto space. The innovation of token swaps brought about platforms facilitating the instant swap function. All that is required is to input the amount you want to exchange and the exact token pair to trade and the platform executes your request. The platform instantly converts your coin and credits your account with the new tokens granting you the opportunity to trade these tokens at will. This way, the transaction fee is only paid once; Hence, simplifying the token swap process.
Also, token swaps can be utilized to upgrade a cryptocurrency’s technology or economic model. For example, projects can migrate their tokens from a proof-of-work (PoW) system to a proof-of-stake (PoS) system. A prime example of this can be in a recent interview with UpOnly where Ethereum co-founder Vitalik Buterin confirmed plans to help Dogecoin Foundation migrate from the current Proof-of-Work (PoW) to Proof of Stake (PoS) crypto consensus mechanism.
Ways to swap tokens
- Through an exchange
Using an exchange to swap tokens is the most popular and convenient way. Here, old tokens are securely stored in a wallet and once the token swap process is completed, these swapped tokens are transferred to a new wallet while the wallet with the old tokens is destroyed. You can either decide to trade or withdraw the new tokens. This option is actually better because it helps you avoid hidden transaction fees and the process involved is straightforward. Exchanging crypto assets with the aid of exchange platforms automates and accelerates swapping tokens, therefore making it a more convenient choice for both new and experienced token holders.
- DIY token swaps
This method is a complex approach for swapping tokens as you are required to facilitate the token swap yourself. Here, you will be provided with a wallet to download or you will be required to register on a website. Then, you will have two wallets - one for the old coins and the other for the new. You will be required to transfer the old token to a specific address only after which your new wallet will be credited.
This method of token swap poses more risk when compared to automated exchanges. This is because the wallets and websites created for swapping tokens can be complicated for newbies and if by any chance you send to a wrong wallet address, your tokens will be lost and are often irreversible.
Benefits of token swaps
- Token swap is a convenient highly secure crypto-to-crypto trading gateway as they allow faster trades while ensuring a smooth blockchain migration.
- Users can get the benefit of data integrity and privacy as the token swap process, and related transactions are stored on the blockchain.
- Token swap helps investors with cost-effectiveness as the transaction fees are transparent and expertly executed, saving traders money in the long run.
- Token swaps are generally much more efficient because they do not require the creation of new tokens and all of the tokens are pre-mined.
Potential risks associated with token swap
- Sometimes, the flexibility of token swaps supported by smart contracts can be limited. For instance, if a project wants to migrate to another blockchain network, they sometimes put a deadline for holders to migrate. If they don't meet that deadline, their tokens may end up being frozen or permanently inaccessible.
- There may be confusion at the initial stage when users have to switch from one set of tokens to another.
Examples of solutions that offer crypto swapping service
Changelly
Changelly is an instant cryptocurrency exchange service provider that enables users to exchange their crypto assets fast and buy using their bank card. This exchange service provides optimal crypto-to-crypto rates and it supports over 160 cryptocurrencies available for exchange. Also, Changelly offers extremely low fees and makes crypto asset trading easy with no registration required and the platform holds no funds or assets for users, they simply act as a middleman.
Changelly helps users to make bids on the platform, then suggests the best available rate and displays the approximate amount users will receive. Once the destination wallet address is provided, you are expected to log in or sign up to save the transaction history then, you will receive your crypto in your wallet within minutes. The platform's trading algorithm is integrated into the largest cryptocurrency exchange platforms such as Binance, Poloniex, HitBTC, Bittrex, etc.
Shapeshift
ShapeShift is a trading Cryptocurrency exchange website which was founded by Erik Voorhees, a blockchain enthusiast, in 2013 and debuted in 2014. The platform's founder Erik wanted to make the process of purchasing crypto assets like Bitcoin as simple as possible by making ShapeShift a “vending machine” that is fit for everyone to use. At the initial stage of Shapeshift launch, only a few cryptocurrency was available for users to trade but as the registered users’ list continued to increase, the platform added an additional 40 cryptocurrencies in 2015, with over 940 trading pairs.
Furthermore, as the platform continued to grow, the list of cryptocurrencies expanded to 103 by July 2018. Currently, there are more than 750 cryptocurrencies available to trade on Shapeshift with some known cryptocurrencies such as Bitcoin, ETC, BlackCoin, Augur, Gnosis, etc.
ChangeNOW
ChangeNOW is a non-custodial instant crypto-to-crypto and fiat-to-crypto exchange that allows users to trade more than 200 coins conveniently, registration-free, speedily and without any limits. The platform is located in Seychelles.
ChangeNOW non-custodial platform is highly secure, trustworthy, and acts only as a temporary intermediary. Funds are not stored on the platform and it doesn’t require any account creation for using its services. Users are allowed to buy cryptocurrencies using a VISA or Mastercard via their third-party partners’ integration.
Simpleswap
SimpleSwap is an online platform that enables its users to trade crypto assets or buy new crypto assets through several registered cryptocurrency exchanges with over 300 coins available. This cryptocurrency exchange process has been greatly simplified to have no sign-ups or limitations when they want to trade.
This makes it easy for instant trading across the exchanges that are supported by the platform. For trading crypto assets, SimpleSwap offers both a floating rate and a fixed rate. The platform has an affiliate and a loyalty program for users with the intention to bring in new users, adding to the growth of the platform.
Concluding Thoughts
Token swaps can be easily carried out by anyone only if you have the right knowledge and resources considering the vast number of exchanges, wallets, and platforms that are available to facilitate the token swap processes. You can decide on the exchange you wish to swap your tokens without any limitations as long as you know the right way to go about it. However, whichever method you choose, either through DIY or through an exchange, ensure you are doing it the right way.
Also, be on the lookout for any crypto assets that you own to know when there's an ongoing migration process so as to avoid not meeting the required deadline. As long as you follow the steps carefully and adhere to the timelines, you should be on the safe side. On a final note, it is important to always do your own research before venturing into any project.
Join Teleport communities if you need support or you want to send us a feedback.
Twitter | Telegram |Telegram Channel| Discord| Github |
