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What are token swaps? How can it help crypto investors? Read this post till the end to get the answer.
The cryptocurrency sector aims to develop simple and seamless systems for handling, storing, purchasing, and utilizing digital assets. This overarching theme has directly improved user experience while removing some complications formerly associated with the growing sector. Token swaps were one imaginative innovation aimed at reducing the overhead cost and time required to exchange one digital asset for another
However, as remarkable as this may sound, few appear to recognize the significance of such features.
What are Token Swaps?
Token swaps are defined differently in the crypto world. The first refers to the procedure of instantly exchanging one cryptocurrency for another without performing a crypto-to-fiat conversion. This concept encompasses the operations of well-known platforms such as Changelly, Shapeshift, and Airswap.
The second meaning of token swaps is the migration of projects or systems from one blockchain to another and the currency-switching requirements that frequently accompany such a shift. In this situation, a project has elected to shift its operation base to another blockchain with distinct token requirements for one reason or another. As a result, the development team must enable investors and consumers to exchange the project’s native token for another token compatible with the new blockchain network. The procedure is known as token switching or token migration.
How Do Token Swaps Work?
For this guide, we shall concentrate on the first definition of token swap. As previously stated, this includes using seamless crypto-to-crypto exchanges instead of the typically inefficient and time-consuming method of converting a digital asset to fiat before using the order to purchase your desired currency. In most circumstances, this technique makes it simpler to gain access to cryptocurrencies with modest market capitalization.
For example, if you want to swap your COMP currency for ZIL, you will most likely find a few exchanges that offer the COMP/ZIL trading pair. As a result, you may need to first exchange your COMP tokens for fiat currency or other established coins such as BTC, ETH, and USDT. From there, you can instantly trade popular coins or fiat to ZIL.
You will agree that this procedure is time-consuming and inefficient. You must deposit transaction fees at least twice to complete such a purchase. Furthermore, it is impossible to predict how price volatility will affect the trade’s profitability. Keep in mind that the prices of crypto assets are frequently fluctuating. As a result, the preceding strategy may make achieving your intended price entry harder.
As a result of these disadvantages, exchanges, wallets, and other platforms began to offer immediate swap functionality. Users can utilize this to exchange one cryptocurrency for another immediately. Enter the amount to be exchanged as well as your desired trading pair, and the token swap service will verify and convert your coin as soon as possible. You have to pay transaction fees once when using this method of dealing.
Platforms supporting token swapping provide a convenient and safe crypto-to-crypto gateway: you can exchange funds from a custodial or non-custodial wallet. You may not need to transmit your coins to a crypto-switching service or exchange before using an instant crypto-to-crypto exchange option, depending on the strength of your wallet. Wallet providers frequently include cryptocurrency swapping services so that customers can securely convert their currencies from their wallets.
Such crypto-switching services provide simplicity, speed, cost, and security. Some even allow consumers to purchase cryptocurrency using credit or debit cards.
Changelly, ChangeNow, Shapeshift, and Simpleswap are examples of systems that provide dedicated crypto-switching services. Exchanges and wallets have also started to develop their switching services. Furthermore, the 2020 DeFi frenzy accelerated the development of DeFi token swap solutions. A similar pattern is currently sweeping the NFT market. When it comes to token swaps, the possibilities are nearly limitless.
Due to the proliferation of exchanging services, it is becoming increasingly vital to conduct due diligence before selecting one. Consider the availability of a varied selection of crypto pairings, the security of the platform, and the speed with which coins are traded. It should be highlighted that fast speeds eliminate the possibility of sliding. When the quantity of cryptocurrency A acquired in exchange for another cryptocurrency B declines abruptly before the transaction is completed, this is referred to as slippage.
It is worth noting that certain providers eliminate slippage by providing set swap rates from the beginning to the end of the transaction. The only additional requirement of such deals is that you pay a larger service charge.
Token swap services are crucial to the continuing crypto revolution. They remove the chief impediments to entry into the cryptocurrency market. In some circumstances, these solutions offer a more specific entry point into cryptocurrencies with modest market capitalization. Token swaps will continue to play an essential role in the crypto market, owing to their simple, rapid, and less sophisticated approach to digital asset exchange.
What Are the Prospects for Token Swap Services?
While Bitcoin is still the most popular crypto asset for new investors, their entrance into the altcoin market finally exposes them to the plethora of options hidden in the digital asset world. This is where token swap services come into play. They increase their focus on user experience and implement mechanisms to open up the altcoin market to people who lack the technical knowledge required to browse crypto exchanges.
As the crypto industry moves closer to general use, token swap services will become more prevalent. This expectation, however, places further pressure on service providers to enhance their offerings.