The basic principles of swaps in cryptocurrency

What is a token swap?

Token swapping is the process of exchanging one digital asset for another according to pre-established rules. Unlike a standard buy or sell transaction, a swap involves replacing one token with another, meaning the user receives a new asset while the old one becomes obsolete.

How a Swap Works in Cryptocurrency

Swaps can occur in various ways. A user can send their coins to a special account and receive new ones in return, or a community member receives new assets to their account while the old ones remain but lose functionality in the project. In some cases, it is enough for the user to simply hold криптовалюту in the online service account, and the administration will independently execute the exchange and credit new assets. Such replacements can be performed both within the same network and between different blockchains.

Why Cryptocurrency Swaps are Needed

Swaps may be required for various reasons. Projects may update their coins to improve characteristics or functionality, transition to a new technological platform, or optimize network performance through changes to blockchain characteristics. Swaps are also necessary during mergers or splits of projects, when assets are combined or divided, or when adjusting the project's economic model.

Swap Terminology

In the world of cryptocurrencies, there are three main types of swaps: token-to-token exchange, coin-to-coin exchange, and coin-to-token exchange. In addition, there is the concept of "token migration" – the process of transitioning from one blockchain to another.

Types of Swaps

Atomic Swap

Atomic swap allows for the exchange of one cryptocurrency for another without the need for a centralized platform or intermediary. This enables users to exchange assets directly while maintaining full control over their funds.

Cross-chain bridges

Cross-chain bridges are a technology that allows for the transfer of assets between different blockchains. This enables interaction between various networks and significantly expands the usability of crypto assets within the ecosystem.

Wrapped coins

Wrapped coins are copies of cryptocurrencies that exist on other blockchains but are tied to the value of the original assets. This allows for the benefits of one blockchain to be utilized while maintaining the value of the asset from another network.