In recent years there have been many advancements in the realm of crypto trading. Most improvements are focused on enhancing the end-user experience. It is because of such innovations that processes like transferring, buying, and storing digital assets have become exceedingly simple. One such highly useful innovation is "Token Swaps". Token swaps allow users to exchange crypto for crypto.
What Is a Token Swap?
Numerous centralised crypto exchanges allow users to buy and sell cryptocurrencies for traditional or other cryptocurrencies. However, due to limited liquidity and the restricted availability of trading pairs on each exchange, it is sometimes not possible for users to trade directly between two crypto tokens.
It is particularly true for low-cap and medium-cap tokens, often only available on a few exchanges. Therefore, instead of a direct transaction, users need to include the intermediate step of converting to fiat money or one of the most popular cryptocurrencies like BTC or ETH.
However, some exchange services specifically target this problem by aggregating several other exchanges and sourcing liquidity from them. The bottom line is that users can switch between two cryptocurrencies directly without the inconvenience and double fees associated with a two-step transaction. Some of the services that allow token exchange are Metamask, ShapeShift, and AirSwap.
In addition to their primary function as decentralised digital money, some cryptocurrencies, such as ETH, NEO, and QTUM, enable users to launch other crypto tokens on top of their blockchains.
These second-layer tokens can "piggyback" on the underlying platforms' security and popularity without investing time and resources in building their ecosystem from the ground up.
In some cases, however, the platform on which a token gets created may become unsuitable for your current needs. For example, developers can build their ticket on the Ethereum blockchain to take advantage of the large user base during the initial coin offering but then decide they need other underlying parameters for the actual product launch. In such cases, a token swap is possible, where developers migrate their tokens from one blockchain base to another while retaining all address balances.
What Are Some Advantages Of Token Swap?
Token swapping has resulted in numerous improvements in the crypto space. Most experts confessed and praised the token swapping feature's security, user-friendliness, cost-effectiveness, and ease of use. And, if you are an investor, you should be aware of the primary benefits you can derive from this function.
- One of the most significant benefits of token swapping is that it has simplified the function of crypto-to-crypto trade. The transactions will be not only cost-effective and effortless but also highly secure. In addition, you will be able to trade on custodial and non-custodial exchanges. Some market exchanges have even eliminated the need to send coins to crypto-swapping platforms to conduct direct crypto-to-crypto trades.
- The transactions involved and the token swapping process gets stored in a chain, which ultimately increases data integrity, which is believed to be one of its most significant benefits. In addition, the guarantee of token swap atomicity is also given to users with Atomic Swap.
- Another significant advantage of token swap is that the innovative contract feature makes transactions extremely cost-effective. It means that investors will be able to save some money.
What Are The Drawbacks Of a Token Swap?
Some of the most immediate perils associated with token swaps are as follows:
- One of the significant downsides that users have experienced is the lack of privacy. Because the token swap is public, many people are concerned about privacy.
- Trust between both parties is crucial in a token swap. First of all, the users must have faith in the project managers. Secondly, users must be confident that the process will be completed as per the agreements. However, if something is missing, it can become the root of the problem.
- Deadlines are another significant risk. If someone fails to swap their token within the time limit, it will be lost forever. More specifically, your old coin will lose its utility, and the exchange will demolish it so that it cannot be recognised by any other exchange service.
In conclusion, token swaps have revolutionised the way crypto-to-crypto transactions are conducted. They offer benefits like cost-effectiveness, ease of use, and increased data integrity. However, there are also some risks involved, such as the lack of privacy and the importance of trust between parties. Despite these risks, token swaps have proved to be an innovative and useful tool for crypto traders and investors. As the crypto space continues to evolve, it will be interesting to see how token swaps develop and improve further.