Token swaps are one of the most valuable innovations in the crypto space!

The massive success of the crypto industry largely depends on innovation. Crypto has transformed the economy in various ways while driving simplicity and profit. The seamless procedures of managing, accessing, storing, and purchasing digital assets have directly improved customer satisfaction and eliminated several complexities that accompanied the emerging sector. Token swaps were designed to reduce the overhead cost and the time required to swap one crypto asset for another. Let's dive in deep.

What are Token Swaps?

A token swap is the transfer of digital tokens from one blockchain into another. It usually occurs when a project uses one blockchain to raise funds and then migrates its tokens to another proprietary blockchain after launching the main net of the project. On the other hand, blockchain projects could also migrate to different blockchain networks for various other reasons. The development team must provide the means for investors and users to swap the project's native token to another token that is compatible with the new network.

Some other responsibilities of token swaps include the instantaneous exchange of one cryptocurrency to another without undertaking crypto-to-fiat exchange. As of now, investors can find different exchange services on the market, enabling users to purchase and sell cryptos for other traditional currencies or digital assets. But, reduced liquidity and lesser trading pairs on different exchanges encourage users to trade directly between two crypto assets. In this case, trading off less popular cryptos might not prove as profitable as they cannot achieve full functionality due to their limited availability in exchanges.

How do token swaps work?

The formulation of tokens and blockchains has provided organizations with the capacity to bring an investment or exchange cooperation through a token for their private scheme, providing them with many more possibilities and more authority than conventional systems of distributing shares.

In a token swap, one cryptocurrency is swapped for another at a decided rate. Unlike trading coins to purchase, a token swap is the interchanging of one coin for another, so it signifies those investors are expected to swap the old for the new one before its value is lost.

How are token swaps supported?

Token swaps are supported through a process of registering and auditing or are facilitated through a cryptocurrency exchange.

In the first case, token holders are gradually invited to register their tokens by the developer of a blockchain project, who then accredits such tokens through a supported wallet. Following a token swap date, old tokens are generally burned, while the official assets then replace them. In the other case, token holders are invited to store their funds on a cryptocurrency exchange. Over the process, the exchanges will cease to offer any trading options for that unit and will audit and exchange the deprecated assets for the newer ones.

Benefits of token swaps

Token swaps enable a convenient crypto trading gateway. Platforms that offer token swapping functionalities generally work as a convenient, flexible, and highly secure crypto-to-crypto trading gateway. These platforms enable exchanging from the custodial and non-custodial platforms. Additionally, the users can get the benefit of data integrity as the token swap process, and related transactions are stored on the chain.

Besides this, it also assures the atomicity of the token swap with atomic swaps. Users can also find better scopes for interoperability with cross-chain token swapping. Most importantly, the token swap smart contract benefits could eliminate third-party token fees, resulting in payment with narrow escrow. As a result, token swapping can help investors with cost-effectiveness while crypto trading.