What is a swap token?

The crypto community is not well aware of token swap processes and their consequences. Despite this, the two leading cryptocurrency projects — EOS and Tron — are in the midst of this process.

Coinswap or token swap is a mechanism for transferring cryptocurrency from one blockchain to another at a predetermined rate and a proportional ratio of new and old coins. In a token swap Platform development, coins from the old blockchain are exchanged for new tokens within a set time frame, and the old tokens become invalid. Along with the migration of tokens, there is also a multi-million dollar transfer of investor capital.

The developers independently set the exchange rate between the currencies involved in the token swap process, methods and terms of implementation. For example, the exchange rate could be a 1:1 ratio. This means that token holders will receive the same amount of new coins. But the exchange rate may differ depending on the decision of the developers, the rate of inflation, changes in general forecasts regarding the future of the project.

Token swaps can be carried out over a long period of time, as is the case with Storj tokens, the migration of which began back in 2017. There may also be deadlines for the exchange, after which the old tokens become invalid and lose their value. For example, VeChain tokens must be moved from Ethereum platform wallets to the platform mobile wallet within 10 days after its launch, otherwise the investment will be lost.

In rare cases, the migration of tokens may be accompanied by an additional increase in invested funds. For example, a project may offer cryptocurrency holders an exchange with a surcharge. So, in the case of an exchange, the user receives the number of project tokens corresponding to the conditions and a certain additional payment for the exchange in bitcoin or another currency. This fee can also act as compensation for the inconvenience caused to investors.

Why is there a token swap?

The advent of blockchain and tokens has given companies and communities the ability to accept investments or sell services with their own coins, providing more power and control than traditional methods of issuing shares. At the same time, creating your own blockchain is quite a costly process, and this creates a kind of chicken and egg problem for a start-up blockchain company: a business needs to issue tokens in order to finance the creation of a blockchain, but in order to issue tokens, a blockchain needs to be created. However, this problem has a solution: you can make a token on an existing blockchain.

The fact is that smart contracts implemented on some blockchains allow you to create a second layer of functionality on top of the original tokens, that is, create your own token on someone else’s blockchain and start fundraising at the same time as building your own blockchain. The most famous blockchain of this kind is the Ethereum project , within which the ERC-20 standard was developed .

The ERC is an internal system for Ethereum blockchain upgrade proposals, and 20 is simply the number of the specific proposal under which the token issue was implemented. Although almost any blockchain that supports smart contracts can theoretically be used to create tokens, today ERC-20 tokens are the most common — it was after its creation in November 2017 that a wave of new coins began to be created.

How do token swaps work?

When conducting a token swap, holders of tokens from a third-party blockchain are invited to actually exchange them for new ones developed by the internal system of the project.

The participation of investors in the process of migrating tokens from one blockchain to another depends mainly on the option of their storage. Tokens held on cryptocurrency exchanges that support token swaps of one or another cryptocurrency are often exchanged automatically, while users who kept their investments in wallets have to exchange coins manually.

In order to participate in the token swap, you should visit the official website of the project, generate a special address key and send the available tokens to it, after which the participant will be transferred the corresponding number of new coins.

For example, one of the main exchanges , Binance , claims to meet all the technical requirements for the migration process of EOS , Tron Token Development , ICON , as well as Ontology. San Francisco-based exchange Kraken also intends to simplify the confusing process.

However, if users store their tokens in wallets, they will need to initiate the process manually. More specifically, in order to send their tokens from the previous blockchain to the new network, they must complete coin registration, also known as “mapping” or “mapping”. In practice, this process usually consists of creating a key for a specific project (for example, an EOS key) and sending tokens to it from the address key where the tokens were stored after purchase, before the launch of the main network (for example, an Ethereum key).

Projects usually assign migration periods with a deadline before which users must exchange their tokens. In projects such as EOS, these are “hard” deadlines, after which the tokens on the old blockchain will be frozen and inaccessible to users. Other startups envision open migration.

Token migration, token swap, atomic swap — what’s the difference?

Token migration Platform development , coin swap, and coin migration are the same as token swap. But an atomic exchange, or an atomic swap, is completely different. In this case, someone buys a coin on one blockchain with a coin from another blockchain without involving an exchange service in the transaction. Such an exchange is called atomic because the concept of the atom implies indivisibility, and the described transaction is carried out according to the same principle — all or nothing.

A successful atomic swap means that the transaction went exactly as agreed by the buyer and seller, otherwise the transaction does not occur at all. Migration of tokens is not a transaction at a market price, it is a complete replacement of one token with another that did not exist until that moment. When people talk about an atomic swap, it’s just one of the ways to buy and sell, and a Token Migration Platform Development Company an update or change to the entire system.

How does a token swap happen?

Whoever made the replacement, you personally or the exchange, before the start of the procedure, trading on the token is often stopped so that transactions do not interfere with the process.

In addition, since some cryptocurrencies have mechanisms to create new coins and distribute them — as a reward for completing a block, for free distribution or use in other procedures — they will also be stopped. And do not focus on the stated deadline — exchanges can take action in advance.

Often, the user has the opportunity to choose which exchange to entrust with the replacement — for this, it is enough just to transfer the tokens to the desired site. It will keep your money and, when the replacement occurs, it will create a new wallet for your account and transfer the tokens to it, and the wallet with the old tokens will be destroyed. Later, as soon as the trading of the new token begins, it can be withdrawn to your wallet or exchanged — as usual. Pretty simple. If you want to do the procedure yourself, it will be pretty similar. Usually, the people who issued the coin you own will launch a wallet that you will need to download, or a site that will require you to register.

In any case, you will have an account with two wallets, one for the old coin and one for the new one, and you will be asked to transfer yours to a specific address. Shortly thereafter, you will see funds appear in the new account. Although the procedures are very similar, doing everything yourself is somewhat more risky. Wallets and websites created by token issuers are often designed specifically for this task, so they may have an unfamiliar interface and things may not work as described in the documentation. In addition, we describe the process in the most general terms, and in a particular case, it may be necessary to select some parameters, and this may create some confusion.

And, finally, in case of an error, there will be no opportunity to correct the situation. If the replacement takes place on the exchange, then if something goes wrong, you will have someone to turn to for help. In general, it is easier to carry out this procedure with the help of the exchange, especially since they usually do not charge any additional commission for this. However, many prefer to do it themselves for ideological reasons, since it is customary in the world of cryptocurrencies to rely minimally on intermediaries.

In addition, in the case of a little-known coin, it may turn out that there is simply no suitable exchange offering such a service. As you can see, replacing a token is a fairly simple procedure that does not require special knowledge. You just need to follow the instructions carefully and in a timely manner, and everything will be in order.