What are Token Swaps in Cryptocurrency | Why is it important!
Swap in the first place denotes the facility to exchange a good or service for cash or vice versa when you are purchasing or selling it. Often it means to exchange one item or service of equivalent value for another. In Crypto, the statement holds true where users can swap or change one cryptocurrency they are holding to other for the same value.
To do a token swap, you can either use a centralised service like an exchange or a decentralised one like UniSwap or SwipeSwap etc. It’s very much similar to placing a trade with the main difference being zero fiat is involved. The trade is between cryptocurrencies and you have to pay the swap fee too in some other cryptocurrency.
When you buy any cryptocurrency through a trade (via an Exchange or a broker) you can pay for it in USD, INR, EUR, etc. Let’s get more idea on it. Assume, I have 1 Ether and I would like to have some ERC-20 based token (XYZ). I’ll have two ways to do that.
Either I can sell my Ether for Fiat and use the same to buy (XYZ) coin but that would involve multiple steps and fees for each transaction. Instead, I could visit Uniswap and use the liquidity pool for the desired token to make it more simple. What is liquidity? Imagine you have a shop in a busy street where people visit and buy often frequently, that can be considered as a liquid market because there’re activities happening on a regular basis on the place. But if the market was quiet with little buying and selling going on, then that would be an illiquid market.
There could be multiple reasons for you to swap tokens. Some of them might be to participate in an upcoming ICO or IDO, or you might want to buy some new innovative project’s tokens. The reasons can be infinite. But that was all about token swaps.
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