A Beginner's Guide to Token Swaps

Swaping tokens on the Ethereum network
Updated on July 06, 2023
CryptoLearningEthereum

There are currently hundreds of tokens that you can buy and sell on DEXs (Decentralized Exchanges), but not all of them, especially the less popular ones, are supported by all DEXs. That’s where the concept of token swaps comes in. Before, users had to exchange their money to some mainstream crypto and then again for their desired altcoin since most tokens weren’t supported by their DEXs. Now, users can exchange tokens directly without spending extra fees for unnecessary exchanges. However, token swaps are still relatively new, and figuring out how to use them properly can be confusing even for experienced cryptocurrency users, let alone beginners who are just getting into this space.

What are Token Swaps?

The expression "Token Swap" can have two different meanings. The first refers to token exchanges or token migrations, which is basically moving projects or platforms from one blockchain to another while modifying the swapping conditions for each coin. The second meaning of Token Swap is exchanging one token for another directly without resorting to exchange first to a fiat currency or main crypto and then to the intended token.

How Do They Work?

Although it may seem daunting, token swaps are actually pretty simple. At its core, a token swap is really just an exchange of one cryptocurrency for another on a blockchain. So, if you hold an ERC20 token (i.e., Ethereum-based tokens) and would like to receive another type of crypto asset in its place, you can simply swap your old ERC20 tokens for new ones on a platform like Metamask without leaving your wallet. Reducing the number of exchanges for swapping is not only faster but it better protects your personal data and it drastically reduces the amount of gas money (fees for computing energy required to process transactions) the users need to get to their target token.

What to Look for in Crypto Swapping Service

The future of token swapping is bright and there’s a lot of activity around these services—but that doesn’t mean it’s easy to understand how they behave in the market, how to trade them, and whether they’re right for you. There are a few basic facts to consider in your own research before choosing an asset swapping service:

  • Security Features: evaluate the encryption method the service uses to secure the user's data. Some swapping services are non-custodial, which means each user is the sole controller of their private keys and not the site.
  • Assets Supported: it is important to make sure that you are going to be able to trade the assets you choose and not only mainstream tokens. Before downloading, make sure the service supports the tokens you are seeking.
  • Limits and liquidity: check the ceiling for withdrawals and deposits.
  • Service fees and gas price: look for the service that searches for the quotes that will cost you the least amount of gas money with the lowest service fee possible.
  • Customer Support: having someone help you when you are having trouble with a transaction is paramount, so evaluate the support team’s response time before going for an app.

Conclusion

Understanding a token swap is relatively simple. For one, you are exchanging one coin for another. But the process of swapping can be overwhelming for newcomers. Thankfully, current token swap services are becoming easier to use every day, building a bridge between the native crypto and the altcoin markets. Users only need to be sure of what they seek from the altcoin market and look for the apps that better suit their purpose.

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