As more and more users flock towards crypto with each passing day, the need arises where you need to learn as much as you can about crypto exchanges and the trading process. A token swap is one such vital thing that you need to learn to maximize your profit. In this article, we will look into what token swap is, how it works, and how it is different from crypto exchanges.

What Is A Token Swap?

A token swap is the process by which traders can exchange one cryptocurrency for another. This swapping of tokens may involve the collaboration of two different blockchains. You can also do this operation on a single blockchain. The associated blockchains can either be public or private. The only thing that you need to make sure is that they employ the same protocols for the trading of crypto coins.

A token swap can be performed on both exchanges and other swapping platforms. One of the major reasons that traders employ this mechanism is because of their fast and efficient way of changing the cryptocurrency at hand. A basic wasp, which involves the swapping of a pair of tokens can be done easily through a swapping service. The majority of the exchanges offer this functionality but there is also a cost associated with this swapping.

Working Of Token Swap

A token swap is a process where you convert one crypto token into another on an exchange. Here, the associated tokens will have the same value. The only difference will be in their names. It’s just like a normal trading or barter system where you sell off one and buy another worth the same value. However, the swapping mechanism may vary according to which token you’re swapping and where you are swapping it.

• Decentralized Exchange Token Swap: In DEX, the token swapping is done mainly through liquidity pools, where users deposit their token pairs, and automated market makers determine the exchange rates.
• Centralized Exchange Token Swap: In CEX, a token swap is done directly by making use of a swapping service that is employed by that exchange. The CEX can also earn revenue through these transactions in the form of fees associated with the token swapping.
• Cross-Chain Swap: A cross-chain swap is a way to exchange your tokens across different blockchain platforms. It allows users to swap digital assets without the need for any centralized exchanges.

Swapping Vs Exchange In Crypto

Many people think that the swapping and exchange of cryptocurrencies are one and the same. However, that is not the case. There are many key differences in how these two works. If you want to know more about these two, kindly refer to the table below.

Crypto Swapping	Crypto Exchange
Crypto swapping only involves cryptocurrencies. There is no usage of fiat currencies.	Crypto exchanging is a process that often involves the usage of fiat currency like USD or euros.
Crypto swaps are mostly done in Decentralized Exchanges	Crypto exchanges are mostly done in centralized exchanges where they are overseen by a central authority.
Crypto swapping usually has a lower transaction rate. Exchanges like Binance don’t even charge fees for this.	Exchanging crypto with another or a fiat currency often comes with higher transaction fees and associated taxes.
Crypto swapping is much more flexible as it allows users to easily explore other cryptos out there.	Crypto exchange is much less flexible when compared to token swapping.
Token swapping can also be completed quickly, with a near-instant transaction speed.	Exchanging crypto takes more time when compared to token swapping as the transactions need to be validated.
Convenient for traders as they can be completed in an instant.	Less convenient when compared to token swapping.

Advantages & Disadvantages Of Token Swapping

Even a feature like swapping one token with another of the same value has its own set of pros and cons associated with it. Here, we will look into it so that you know exactly what you are getting into.

Pros

• Token swapping costs less transaction fees.
• Users can have access to a large amount of tokens easily.
• High-speed transaction.
• Improved flexibility in trading tokens.
• Enhanced security.

Cons

• Variability associated with exchange rates.
• Not all crypto exchanges support token swaps.

Even with these drawbacks, swapping is done and used by a wide range of traders. However, you need to be careful while choosing the resultant token that you are going to swap for so as not to incur a loss on your part.