The crypto space is well-known for its disruptive nature, leading to concepts and technologies ushering us towards a new era. In today’s article, we’re focusing on a crypto innovation known as a token swap.
The token swap process was designed to decrease the overhead cost and time necessary to exchange crypto tokens. Although it seems a relatively simple procedure, not many people know what token swaps are and how they work. Let’s uncover together the art of token swapping!
What are token swaps?
When it comes to token swapping, there are two definitions that you should be aware of. The first definition of a token swap refers to the process of exchanging crypto assets for other digital tokens without the need to use a crypto-to-fiat exchange.
The other meaning of token swap, also called token migration, involves the transfer of tokens from one blockchain to another. It usually occurs when blockchain projects use a network to raise funds and migrate to a different blockchain network after the main net launch. The project’s developers must ensure that crypto investors and users can swap the project’s native token for another one that will work on the new platform. We will call the first process token swap and the second one token migration to understand this better.
How do token swaps work?
A crypto-to-crypto exchange is seamless and cost-effective compared to the expensive and time-consuming alternative of converting digital assets to fiat money and then using the traditional currencies to buy a new cryptocurrency token. Token swaps are beneficial when users want to trade with cryptocurrencies with low market capitalization. Instead of paying multiple transaction fees to different exchange services, crypto holders have access to instant crypto swapping functionalities.
The first step would be to enter the amount you wish to exchange and the desired trading pair. The token swap services would make an instantaneous exchange, and you’d only pay the trading fee once. Some platforms even offer such functionalities from within your custodial or non-custodial wallet. Making these exchanges from your personal wallets is a huge relief, as it makes the whole process smoother, faster, and more reliable.
The inner workings of a token migration
When project developers decide to do a token migration, token holders are invited to register their tokens on a supported wallet where they get accredited by the developers. The token swap date is established, and the old, swapped tokens get burned while the other crypto tokens replace them, becoming the official assets.
The other method includes the use of a cryptocurrency exchange. The exchange stops offering any crypto pairs for the old tokens during the migration process while also auditing and exchanging them with the new crypto assets. Both are seamless processes, enabling users to transition from one official coin to another without hiccups.
What are atomic swaps?
Atomic swaps are a completely different concept from token migration or token swaps. They focus on the exchange of crypto coins on different blockchain networks with the help of a smart contract. There are no centralized intermediaries as network participants trade directly when the transaction conditions are met. If any of the contract conditions are not fulfilled accordingly, the transaction will simply not occur.
Token swapping functionalities & benefits
The platforms that offer crypto swapping services work as a highly efficient, flexible, and secure crypto-to-crypto trading gateway. These platforms enable exchanging two crypto-assets simultaneously from both custodial and non-custodial wallets. Let’s check some of the clear cut benefits of token swaps:
- Improved liquidity - users can easily swap tokens, even purchasing more popular tokens if they wish
- Data integrity - the token swap process and any related transactions are stored on-chain
- Interoperability - cross-chain token swapping is a massive benefit for the crypto industry
- Cost-effective - eliminating the third party service fee and adding fixed swap rates makes crypto trading more affordable
Token swaps have created quite a name for themselves in the crypto sphere. They have had massive success since they eliminate the usual obstacles of entering an altcoin market. Thanks to their efficient and straightforward digital asset exchange approach, we believe that these processes will become a pivotal part of the emerging sector of cryptocurrency trading.
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