Swap Meaning

What Is Crypto Swap?

Crypto swap (crypto-to-crypto exchange) defines the direct exchange of one crypto for another without requiring a preliminary crypto-to-fiat exchange. Think of it as “buying” a coin you desire using another cryptocurrency instead of fiat money. It can also entail transferring digital assets from one blockchain to a different chain.

For example, assume that you hold some ETH and want BTC instead. Swapping crypto allows you to directly exchange your ETH for BTC of roughly equal value (minus fees). How is this different from crypto-to-fiat-to-crypto exchange? 

Converting into and out of fiat currency involves transaction fees on both steps, resulting in higher transaction costs and time consumption. Direct crypto-to-crypto exchange eliminates the need for the two-step trade and double fees involved in the fiat-intermediate process– thereby lowering the transaction costs and inconvenience. 

How do crypto swaps work?

A crypto swap platform facilitates direct crypto-to-crypto exchange. The process can be performed through a centralized exchange (CEX), decentralized exchange (DEX), over-the-counter (OTC) exchange, or a blockchain bridge.

• CEX – You initiate the direct trade by sending your coin to the CEX’s swap service and receive an almost equal amount in value of your desired token. As the exchange holds your private keys on your behalf, the crypto received remains in the exchange’s control.
• DEX – Smart contracts facilitate crypto-to-crypto exchange processes in DEXs. It implies that users conduct transactions from their cryptocurrency wallets, where they control their private keys. However, DEXs are often hosted on specific blockchains, limiting liquidity.
• Blockchain bridge – Bridges provide a way for exchanging one blockchain asset for another on a different chain without involving an exchange. However, bridges come with a myriad of security concerns.
• OTC – OTC exchanges are a non-tech-savvy way of swapping crypto for another. However, they are rife with counterparty risk, lack of price transparency, and low liquidity. The transaction process is also often opaque in nature.

How To Swap Crypto On Ledger

Another way to swap crypto directly is through your Ledger device. Users can initiate a transaction through Ledger Live via one of Ledger’s trusted partners, such as Changelly, Paraswap, and 1inch. Ledger Live provides a secure gateway to swap service providers.

The crypto being exchanged for another is directly sent to one of the swap providers. Upon accepting the exchange and confirming the transaction, the provider sends the desired token directly to the user’s address, which the Ledger device secures. The received crypto is, thus, in complete control of the user as the Ledger devices are non-custodial. In addition, this method keeps hackers targeting vulnerabilities in bridges and exchanges at bay.

Learn more about how and where you can directly swap your crypto here.