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Today we will discuss swaps — a common operation in crypto markets, which may be as popular as trading. A swap is an exchange (or temporary exchange) of any assets in trading on the stock exchange.
A curious reader may immediately ask a fair question — if it is just an exchange, why is this instrument called a separate term “swap”?
To answer simply, a swap is an advanced exchange connected with many additional conditions. For example, such an exchange can stretch out over several years, or the swap can result in the asset eventually being returned to the seller. To complicate matters, several types of swaps implement different exchanges, but I hope you have a general idea. Swaps allow you to eliminate even the most difficult-to-sell commodity by creating flexible exchange terms.
But do not be frightened — we will give you more details and explanations below, but for now, let’s conclude with the academic definition of the simplest swap:
A swap is a conversion transaction to exchange assets for a specified period.
Crypto swapping can be seen as a form of exchange that can only be initiated with a crypto coin and for another crypto coin. These coins may not necessarily possess the same market value, but they tend to balance each other out through the amount offered and received. Thus, it is a complex form of exchange, which can become equivalent only after some time and under certain conditions.
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It should be understood that the swap is unlikely to bring significant income because this financial instrument is most often used to hedge risk. The logic of its usage should be considered from this point of view. Here is a simple example.
If you decide to swap Bitcoin for Ethereum, knowing fully well that their price value range differs, you would have a much greater amount of Ethereum at the end of your crypto swap. And as time progresses, if Ethereum gathers more value against Bitcoin, your crypto swap would greatly be in your favor should you decide to swap again for Bitcoins or trade for a fiat currency.
Crypto swapping has gained popularity for many reasons, which you will realize as you continue to read this article. But one reason which encompasses all others would be that crypto swaps have provided a lot more convenience for crypto coin owners worldwide.
At the end of each process, the point would be to maintain ownership of some crypto coin, thereby preserving the possibility of acquiring profit over time. Here are some reasons why crypto swaps have become such a popular trend.
Trading and Swapping share a very close similarity. For anyone to fully understand the difference between both, they would need to pay close attention to the action being carried out on the exchange platform of their choosing. Even though trading is executed with the same concept as swapping, they can not be interchanged in the world of crypto coins; here’s why.
Trading is done based on a platform’s available pairs of crypto coins. Let’s say you have just acquired some fiat currency via P2P purchase. While this purchase has already cost you some fee to acquire, you would still be required to pay another fee when you choose to purchase a crypto coin with it. This process requires two steps: acquiring and using fiat currency to acquire a crypto coin. Trading requires a stable fiat or active crypto coin trading pair to be executed.
Swapping, on the other hand, offers you the option to acquire a crypto coin in exchange for another crypto coin. Crypto swaps are dependent on what coins the platform you use offers.
Swapping has become a faster means for crypto coins owners to maintain their ownership of crypto coins at the end of exchange; it cuts through the extra step of purchasing crypto coins after converting them to fiat currency. This has made crypto swap a form of exchange that is often sought, and there are various ways in which you can Swap your crypto coin right away.
The two major way categories of exchange platforms that allow their users to crypto swap are CEX (Centralized Exchanges) and DEX (Decentralized Exchanges). Both have proven very effective, but they share a great deal of difference. While one is centered around a custodian that requires you to undergo a verification process, the other is decentralized and requires little to no information to execute your crypto swap.
The process for swapping cryptocurrencies depends on the platform you use for your crypto swap. For centralized exchanges, you will be allowed to swap through P2P. after verification. However, for decentralized exchanges, a user must connect their wallet, select the crypto coin they wish to swap, select that which they want to swap for and input the appropriate amount before clicking the swap button.
There are three common ways users of crypto coins can swap their crypto coins, and we will discuss some facts you should know about them below.
(с) The article is written by Paul Awoniyi, 2022
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