Token Swaps - An Overview

Numerous exchange services exist on the market that allow users to buy and sell cryptocurrencies in return for traditional currencies or other cryptocurrencies. Due to restricted liquidity and the amount of trading pairs accessible on each exchange, users who want to trade directly between two crypto tokens may find it impossible to do so.

 

This is particularly true for lesser-known tokens, which are usually offered on only a few exchanges. Instead of using fiat money, users must use one of the most prominent cryptocurrencies, such as BTC or ETH, as an intermediary.

 

What are Token Swaps?

 

A token swap is the transfer of digital tokens from one blockchain to another. It frequently occurs when a project raises funds on one blockchain and then migrates its tokens to a separate proprietary blockchain after the main net is released. 

 

For a variety of reasons, blockchain projects may choose to use other blockchain networks. The project's native token must be exchangeable for another token that is compatible with the new network, which must be provided by the development team.
 

 

Where are Token Swaps supported?

 

Token swaps are either enabled by a registration and auditing procedure or facilitated by a cryptocurrency exchange.

 

Token holders are progressively asked to register their tokens by a blockchain project's creator, who subsequently accredits such tokens using a supported wallet. Old tokens are often burnt after a token exchange date, and official assets are used to replace them. 

 

Token holders, on the other hand, are encouraged to keep their assets on a cryptocurrency exchange. During this time, the exchanges will stop offering trading choices for that unit and will audit and replace depreciated assets with fresher ones.
 

(Finding the perfect cryptocurrency exchange for yourself? Here are some of the Top Crypto Exchanges)

 

Watch this: How Cryptocurrency ACTUALLY works

---

---

 

Advantages of Token Swaps

 

Token swaps provide a simple way to trade cryptocurrency. Platforms that provide token swapping capabilities serve as a simple, versatile, and secure crypto-to-crypto trading gateway. These systems allow users to transfer data between custodial and non-custodial platforms. 

 

Additionally, because the token swap process and related transactions are kept on the chain, users may benefit from data integrity.

 

Aside from that, atomic swaps ensure the atomicity of the token transfer. With cross-chain token swapping, users may also find greater scope for interoperability. Most crucially, the benefits of the token swap smart contract might eliminate third-party token costs, allowing for payment via tight escrow. As a consequence, token swapping can help investors save money while trading crypto.

 

(Interested in Investing in Bitcoin. Here’s a Guide for you to trade and invest in Bitcoin)

 

Motivation behind Token Swaps

 

A reflection on the underlying reason is another significant component that can aid in better comprehending the concept of token exchange. Enterprises may use blockchains and tokens to attract investments while maintaining control and access to many choices. 

 

In comparison to traditional methods of issuing shares, blockchain and tokens may provide more flexibility to businesses. On the other hand, laying the groundwork for a blockchain network necessitates a significant investment. As a result, selling tokens as an investment option would require investing on the blockchain.

 

In these situations, the best option would be to create a second-layer token atop an existing blockchain. Smart contract capability can assist in the creation of a second layer on the native token in such instances. 

 

As a result, the token swap might aid businesses in the development of their own blockchain while also allowing them to operate tokens on other blockchains. With its ERC-20 tokens, Ethereum is one of the most common examples of creating bespoke tokens. 

 

Token swap smart contract functionality got widespread acceptance with the ERC-20 standard, leading to the emergence of a slew of new coins.
 

These are the 5 things you should know before you start crypto swapping:

 

1. Don't forget about Ethereum gas fees

 

Ethereum lets projects use smart contracts to produce ERC20 tokens. These coins must be processed through Ethereum, which necessitates the payment of a gas fee. Gas fees might be costly depending on market trading volumes, lowering your profits on every single trade. It's even worse for switching, because certain methods necessitate multiple coin swaps to achieve any advantage.

 

(New to Trading? Here are the 6 Basic Trading Principles you should keep in mind)

‍

 

2. Learn about exchange fees

 

In addition to petrol, consumers must consider exchange fees, which vary greatly. Before completing your transaction, crypto swapping sites will have this listed in their FAQs or highlighted.

 

Importantly, double-check the amount of cryptocurrency you expect to receive from each swap. Some sites will display a dollar equivalent of your desired token, which may be less than you anticipated.
 

 

3. Use the right wallet

 

Before sending your newly switched cryptocurrency to your wallet, make sure it's supported. Some tokens that were originally ERC20 tokens but have since been migrated to their native protocols will be difficult to migrate. Before you complete a transaction, double-check that you have covered all potential areas of discrepancy.

 

 

4. Consider liquidity and slippage

 

When a trade is executed at a different price than when it was initiated, this is known as slippage. Slippage is unavoidable in some trades due to the unpredictable nature of cryptocurrency markets. Some platforms impose limits on slippage, preventing transactions from being executed if slippage reaches a certain threshold.

 

You'd think that when it comes to liquidity, switching rates would remain constant regardless of amount. That isn't the case at all. Swapping rates fluctuate according to the number of cryptocurrencies available for swapping. Changing your transaction will entice a cryptocurrency with limited liquidity to offer you better rates.

 

(These are some of the Most stable Cryptocurrency you can invest in, in 2022)

 

 

5. Follow tried-and-true security procedures

 

Use two-factor authentication to access your wallets and other accounts related to your crypto operations whenever possible. Don't share your private keys with anyone, and never use them on a website directly. If an offer looks too good to be true, it probably is.

 

Only use reliable exchanges and keep in mind their centralised nature. When you store your cryptocurrency on a centralised exchange, you give up complete control over it. If something goes wrong, you won't be able to access your crypto until the issue is resolved.

 

Watch this: What are Token swaps?

---

---

 

‍Conclusion

 

Even though Bitcoin and Ethereum are two of the most popular cryptocurrencies on the market right now, many of the newer options are attracting investors' attention. Altcoins, in reality, provide access to a wide range of opportunities related to the digital realm. 

 

Token swap services could improve the user experience by allowing for quick and direct crypto trades that are also cost-effective.

 

At the same time, before deciding on a token exchanging service, it's important to do your homework. For predicting the true value of token swaps, a thorough understanding of the risks they pose, such as time constraints and additional expenses due to slippage, is also required. Learn more about token switching and how to choose the best option for you.