Updated: Jun 30, 2022
Token swapping is a rudimentary step in DeFi trading. It’s become such a popular concept in the crypto space that exchanges, platforms, and wallets started incorporating token swap functionalities. But how does it work exactly?
Token swaps allow investors to directly exchange crypto assets with each other. Put simply, they allow for an instantaneous cryptocurrency exchange, eliminating the need for a crypto-to-fiat exchange.
Token swapping requires a few simple steps. First, you would enter the amount you want to exchange alongside the desired crypto pair. The system will then process the transaction instantly via a token swap smart contract and convert the coin. Since the process is direct, you would only need to pay the transaction fees once.
Nowadays, there are several token swapping services, and wallets and exchanges are working to incorporate this functionality in-house. Established ones have aggregated multiple decentralized exchanges and would even include popular currencies like ETH and BTC.
But while sites developed by token issuers to facilitate token swaps are designed to be secure, seamless, and simple, the process presents some complexities for beginners.
Addressing complexity in token swapping
Swapping one token for another is the most basic trade in DeFi. Seasoned traders would prefer going the DIY route, but for beginners, manual token swaps aren’t an ideal choice. A small mistake could lead to permanent consequences. You would need a strong command over the crypto ecosystem to easily navigate the variations in the process among the different token swap functionalities.
Selecting a swapping service is even harder as processes depend on different factors such as the method of swapping or the availability of token pairs selected. Traders also need to practice due diligence in understanding factors like the speed of swapping coins and the security infrastructure of the platform.
That said, the ideal token swapping process should be instant, as high-speed swapping reduces the risk of slippage. High speed in token swapping protects trades from price volatility. Although some platforms offer fixed swap rates as a form of relief from slippage, the transaction fees tend to be higher.
Another major drawback of token swapping is privacy since token swaps are visible in the public blockchain. This is why some platforms incorporate an off-chain secret for claiming tokens as an added layer of security.
But the biggest concern would be the lack of flexibility in some functionalities. For instance, if a specific party fails to withdraw the tokens within a specified period, the swapping service might lock in the tokens or send them back to the payer. So it’s either the transaction pulls through or not at all.
AlgoBlocks helps address these setbacks and makes the swapping process even easier, faster, secure, and transparent with the added benefit of a user-friendly interface.
Swap tokens effortlessly with AlgoBlocks
AlgoBlocks’ token swapping interface offers true transparency. While other platforms don’t show you exactly how much you’re going to pay to do a swap, our platform lets you instantly preview how many tokens you will get from swapping your tokens, as well as the fees the swap will incur. This way, you can maximize your tokens and make a more informed choice before pushing through with a trade.
There are many benefits to token swapping. Not only does it improve liquidity, but they also allow traders to use their tokens to purchase other types of tokens. More importantly, users benefit from not paying a third-party service fee. That said, token swaps make crypto trading more cost-effective.
AlgoBlocks helps you take advantage of token swapping with improved simplicity, speed, security, and transparency. Our in-house swapping solution means you don’t need to leave the platform to swap your tokens, saving you time and money.