Bitcoin is growing on the charts, and the capitalization of cryptocurrencies is on the rise along with it. Coins that had even previously been unknown are being pulled along as the market is experiencing momentum it had not witnessed since 2017.
Cryptocurrencies are becoming popular as means of payment worldwide, but their adoption is being hindered by the technologies they are based on. The existence of different blockchains that may not be interoperable is an obstacle to the use and application of the assets they host. The solution to this problem lies in cryptocurrency swaps.
Swaps are a technology that allows various coins from different blockchains to be interchanged and transferred between infrastructures supporting them. The applications for such options are immense, as is their growing popularity.
Users of the MetaMask wallet service alone have conducted over 341,000 transactions with a total worth of over $1 billion in swaps. Though MetaMask charges a service fee of 0.875% for each transaction that is quoted into the amount of the transfer, and the service has faced criticism from the DeFi community regarding the size of the commission, the wallet is gaining users.
Most users of MetaMask value the service for its convenience, the availability of a streamlined and functional mobile application, and the fact that the wallet allows making swaps using a single button. Multiple decentralized exchanges are used as part of the swap feature via automated market makers to ensure the best prices, thus providing users with a better DeFi experience.
While MetaMask offers swaps for only 29 cryptocurrencies, there is a number of larger platforms on the market that allow users to exchange and swap almost any asset for another, no matter what chain they may be on. A solid example is SWFT Blockchain, the Draper Dragon-backed cross-chain swap and payments platform, which offers direct exchanges of over 200 tokens and cryptocurrencies through its mobile app and desktop page. The platform adds new tokens every day to its already impressive list, and has thus rapidly become a leader in the number of coins available for swapping. The platform uses a combination of blockchain, machine learning, and big data to enable direct swaps between a large number of cryptocurrencies in seconds at competitive rates.
Building upon its core swap offering, SWFT Blockchain also provides users with a variety of storage options, including custodial and non-custodial wallets and financial tools like payments and red packets.
How swaps work
In short, a swap entails the exchange of one cryptocurrency for another. Normally, exchanges are used for such transactions, but they require users to conduct purchase and sell operations. Swaps, on the other hand, are intermediary services that allow holders to directly exchange one type of asset for another without having to undergo the buy and sell procedure.
Swaps are usually conducted when one needs to exchange a cryptocurrency from one blockchain for an asset native to another blockchain, which are not interoperable. The result is a fair exchange that retains the value of the asset minus the conversion fee. Most swaps take place using Atomic Swap technology that requires two parties to generate, hold and then exchange keys that would make the swap possible – hence the name – atomic, which mean that the transaction either takes place or does not.
The main aspect that sets Atomic Swaps apart from swap services is that they, essentially, do not require a service acting as an intermediary, and allow users to interact individually, swapping assets on a peer-to-peer basis. However, the availability of a centralized service that makes swaps available instantly, without the need for searching for a suitable swap partner in the manner of a barter system, makes them considerably more convenient.
In the case of swap services, a centralized platform is most often employed. These are called cross-chain swaps, where the platform acts as the second party to the transaction and acts as one of the players in atomic swaps. The process allows users to obtain the tokens or coins of another blockchain directly onto their wallet and continue operating as though the assets they hold were initially from the blockchain they are migrating to.
The advantage of swaps is that they allow users to retain asset value and make blockchain’s interoperable on the token level, essentially acting as bridges. The platforms utilize a host of technologies to ensure security and operation speeds, but most still rely on Atomic Swaps or Direct Swaps that act as automated, self-enforcing exchange smart contracts.
Cryptocurrency swaps are important not so much as a popular service, but a structural element for the cryptocurrency market, as their availability is essential for ensuring continued growth and application of tokens in everyday life. It is likely that the volume of swaps will increase along with the growth of the market and the number of coins being traded.
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