Swapping

Beginner’s Guide to Crypto Swapping

In cryptocurrency, swapping refers to exchanging one coin or token for another. Sounds simple, but when you have over 1,500 different types of cryptos, things can get a little clunky.

The market is constantly expanding and every time a company feels ambitious, a new token is added to the mix. Each of these tokens represents not only new value but a potential investment venture. To some investors, that could shape their financial paths, so knowing how to swap effectively makes a big difference.

When faced with an overwhelming collection of coins, new traders often don’t know how to proceed. They might have picked up a few tokens from one chain but see an opportunity to profit from another. This is where a lot of people follow the traditional method of conversion. They would convert the crypto to fiat currency and then use that to buy the coin they want. While this still works, it takes an extra step and you may have to pay transaction fees more than once.

Crypto swapping is a more seamless process that allows you to acquire the coin you want instantly. A major exchange platform will have this option available to its users to make trading as convenient as possible.

In this guide, we’ll go over the basic concept of swapping and the difference between swaps and trading.

Swapping vs Trading

The mechanics of swapping and trading are the same, but the difference in outcome is significant.

When you trade crypto, it means you’re executing a trade based on the order book. You can only execute a trade based on the trading pairs available on the specific exchange.

Swapping is a similar process but with more flexibility. You can exchange any cryptocurrency for another even if the pair is not live on the spot market. This eliminates paying transaction fees more than once. Most of the time, if you’re only swapping a small amount, convenience is the bigger concern here. That said, the concept of crypto swapping is applicable to any level of volume.

Despite the nuanced differences, trading and swapping are not interchangeable. This isn’t a matter of syntax but has to do with value. While a bit cumbersome, there are still good reasons to trade instead of swap.

Swapping is better as an immediate solution. In most cases, it has nothing to do with profit. When you want to buy something that must accept DAI but only have ETH to spend, it’s a good time to swap.

Additionally, the swap function allows users to swap fiat and crypto with no trading knowledge required.

Swapping on CEX vs DEX

Crypto swapping has become popular in major platforms and is now mainstreaming as a selling point in smaller exchanges. The process is already super-fast by design so competitive factors come down to variety and transaction fees.

There are benefits in both using centralized and decentralized exchanges, but the former offers something DEX never could and that is peace of mind. That’s not to say if you use DEX you’re bound to lose money, but the lack of regulations tends to keep people on edge.

Availability plays a key role in deciding whether to use DEX or a centralized exchange. First, be aware that there are currently over 6,000 different tokens and counting. Every blockchain project and every business venture often result in a brand new token hitting the market. Not all of them will ever make it to the crypto exchange but you can easily find them on DEX.

Let’s also consider the metaverse and NFTs. The metaverse is known as a massive producer of tokens, some of which eventually become NFTs. Crypto gaming is gaining a lot of popularity and every title has its own token. Depending on what you play, some of the in-game assets are worth a silly amount of money. For example, Axie Infinity has NFTs that are valued at tens of thousands of dollars. When investing in any of these, swapping comes in handy and will provide a smooth experience.

A common problem with DEX is that the AMM allows anyone to create a token. Unsuspecting traders could be swapping into financial despair. As you can see, too much availability has its downsides.

Trustworthy exchanges may have a shorter variety of swappable pairs, but they are official and are often monitored for quality. We use the term “short” pretty loosely here because most platforms still offer hundreds, if not thousands, of available crypto.

Another factor is transaction fees, or gas fees when dealing with DEX. Users are often faced with high gas fees when swapping on DEX. You can mitigate this cost when using a centralized platform. On top of that, there’s always a bonus or reward you can claim on official exchanges. With some timing, you can further reduce swapping costs or completely counteract them. Some companies also let you swap cross-chain assets for much lower fees. This doesn’t happen on decentralized exchanges.

To Sum Up

Now that we understand how swapping works, our decision-making becomes a little more polished. Remember that there are no fixed strategies when it comes to crypto trading. The market is in a constantly fickle state so the best approach is to keep an open mind and an open eye to opportunities.

Swapping provides flexibility and allows us to quickly gain the position we want in the flow of things. Whether you’re using centralized platforms or decentralized exchanges, it helps to always be conscious of the ever-changing value of crypto. Swapping is convenient, but it shouldn’t center around profit. What you want today might not be what you need tomorrow.