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What Is a Crypto Swap and How To Swap Crypto?
The crypto ecosystem now has thousands of use cases and interesting projects. Sometimes, for various reasons, such as funding crypto casino software or paying for a product online, you might need to get a specific crypto token.
If you own one type of cryptocurrency already, you can simply convert it to your desired cryptocurrency using a simple process known as a crypto swap. This is an efficient method used to convert one crypto token to another one without going through a crypto-to-fiat exchange first. Swapping tokens is a seamless and quick process with lots of benefits.
In this article, we will explore crypto swap meaning with examples explaining how this process works, as well as its benefits, costs, and limits.
- A crypto swap is a direct exchange of one cryptocurrency for another without using fiat currency as an intermediary.
- You can swap crypto tokens on a centralized exchange, decentralized exchange, or wallet-based platform, providing a quick and seamless conversion process.
- Swaps can be executed via smart-order-routing engines, which find the best deals across platforms, or smart contracts on a decentralized exchange.
- Crypto swaps are faster, simpler, and often more affordable than traditional exchanges.
What Is Crypto Swapping?
A crypto swap (also known as a crypto-to-crypto swap) is a direct exchange or barter of one cryptocurrency for another without using a fiat currency as an intermediary. This method of currency swapping is different from the traditional exchange where you first convert your crypto assets to a fiat currency before you purchase your preferred token. For crypto swapping, the process is direct and takes place in just one step – exchanging one crypto asset for the equivalent value of another.
As explained above, a crypto swap is different from alternative methods of changing cryptocurrencies such as crypto exchanges. You can read our crypto swap vs exchange article to learn more about these distinctions.
Atomic Swaps
Atomic swaps are an automated and self-enforcing cryptocurrency exchange contract that allows peer-to-peer swaps of crypto assets across different blockchains. An atomic swap is powered by smart contracts, they do not require a centralized authority to facilitate the trade between the two parties.
The smart contract that controls typical atomic swaps is the hash timelock contract technology (HTCL). This is a smart contract that has all the conditions for a cross-chain swap coded into it. Consequently, this technology locks the transaction until both parties fulfill the condition for the exchange after which the swap is confirmed. By implication, if one of the parties involved does not satisfy the smart contract’s condition, the trade will not be executed and no action will occur.
How Does Crypto Swapping Work?
A crypto swap is a simple procedure that makes it possible to conveniently exchange one crypto asset for the same value in another token. This makes it possible for individuals to participate in projects or use a specific crypto protocol.
A crypto-to-crypto swap can be executed on a crypto swap platform, a centralized or decentralized exchange, or directly on a crypto wallet with a swap option. The specific mechanics for the exchange depend on the platform where it is being executed.
With any of these options, the same process happens under the hood. The swap process begins with the user indicating the currency pairs they want to swap and specifying the amount to swap. The platform will calculate the exchange rate for the swap and show this to the user. Once the transaction is formed, the swapped currencies are sent to the user’s wallet, completing the transaction.
Swap Crypto Methods
The whole process of converting one crypto token to another without an intermediate currency can be carried out through either of two processes. You can use a smart order routing engine that can help you find the best deal across multiple platforms or carry out the swap via a smart contracts-powered decentralized exchange. Here’s a breakdown of these two ways of swapping crypto.
Smart-Order-Routing Engine
A smart order routing engine is a proprietary platform designed to compare the price of tokens across different exchange platforms in order to help you find the best deal on any swap you want to make. The main benefit of this option is that it allows you to find the best price for your currency pair instead of sticking to the price provided by an individual exchange. The easy swap engine feature may also split the token you want to swap across several exchanges to get you the best value on your trade.
Smart Contracts
A smart contract swap is what happens when you carry out a swap on a decentralized exchange. This is an automated self-executing contract such as a hashed time lock contract (HTLC) which acts as a two-way safe to automate token swaps. This contract is secured by a complex mathematical-based encryption known as a hash function. The app would automatically swap the token once the condition of the contract is fulfilled by the parties involved. A smart contract swap will only be confirmed if both parties keep up with their end of the contract within the stipulated time limit.
Centralized vs. Decentralized Platforms
Crypto swap platforms are either controlled by a centralized authority or built on the blockchain where they can operate as a decentralized crypto ecosystem. Either of these two options has its own benefits and downsides depending on your priorities or goals for your crypto swap.
Centralized Exchange

A crypto swap can be carried out on centralized exchanges like Kraken or Coinbase using the swap feature built into these exchanges. This is a platform with a centralized server controlled by a central authority that facilitates the transfer of tokens between users. While centralized exchange platforms are mostly known for crypto trading, a few of them facilitate crypto swaps, conveniently exchanging crypto assets in a centralized manner.
To swap tokens on centralized exchanges, users will have to create an account. These platforms conduct thorough KYC verifications to authenticate the identity of users. They also have anti-money laundering (AML) measures to detect fraud, corruption, terrorist financing, and other illegal activities. Most CEX platforms operate on a custodial basis which means you need to send the token you intend to swap to the platform instead of leaving it in your wallet.
Pros
- Higher liquidity/larger trading volume due to the popularity
- Relatively straightforward crypto swap process
- Higher availability of customer support to navigate issues
Cons
- Entrusting a token to a third-party
- Frequent lack of support for less popular tokens
- High transaction fees
Decentralized Exchange

A decentralized exchange (DEX) is a crypto exchange platform built on the blockchain. Transactions are controlled by smart contracts which means there’s no central authority to govern crypto swaps. Although they’re less common compared to centralized exchanges, decentralized platforms are fast becoming popular due to increasing demand for platforms that offer privacy and convenience.
You can swap crypto using DEX platforms on a peer-to-peer basis. On some platforms, users don’t even have to register an account or go through a KYC process. They simply connect their preferred wallet to start swapping cryptocurrency.
Instead of a third party acting as an intermediary, smart contracts facilitate the exchange of tokens on a decentralized platform. This is done by automatically executing the trade based on predetermined parameters, such as price and volume. It is safe to swap cryptocurrency on decentralized exchanges due to its decentralized nature. Examples of decentralized exchanges that provide crypto-swapping services include Uniswap, SushiSwap, and PancakeSwap.
Pros
- More privacy and anonymity compared to centralized platforms
- Non-custodial character, which means your token is always under your control
- Improved security thanks to the blockchain core
- Lower fees compared to centralized exchanges
Cons
- More complex to use, requiring some level of technical know-how
- Low liquidity compared to centralized exchanges
Crypto Swap Fees
The cost to swap crypto depends on the platform that is being used to facilitate the swap. For instance, if the swap is being done on a decentralized exchange, all you have to pay for is the network transaction fees for transacting on the blockchain. You may also be asked to pay a small fee for using the exchange platform especially if it is not an open-source service.
Regardless, a decentralized exchange tends to be cheaper to use compared to a centralized platform. With CEX, you’ll likely pay at every step of the trade, from depositing your token on the platform’s custodial wallet to the final withdrawal.
You will also pay a crypto swapping fee for the swap itself which depends on the type and amount of crypto you want to exchange. The fee is typically charged on the token you intend to swap. This means you’ll be paying in Ether if your goal is to convert Ethereum to Bitcoin.
Generally, the higher the volume of your trade, the less you pay. This means you’re more likely to save costs on a crypto exchange if you carry out a large trade all at once instead of smaller trades.
Tax Implications of Swapping Crypto
Crypto trading remains a grey area in most jurisdictions. As a result, many traders are unsure of what counts as a taxable event and what doesn’t. While a crypto-to-fiat exchange is an established taxable event, where does a direct crypto-to-crypto swap stand?
As far as the IRS is concerned a crypto swap is considered a taxable event and this means it is subject to a capital gains tax. This is because a crypto swap will always result in a profit or loss due to the change in the value of a crypto token between the time it was acquired and the time of the swap. Consequently, the IRS expects a trader to report any gains or losses accrued from the swap at the time of the transaction.
Important Note: Tax laws for crypto transactions differ across jurisdictions. While some countries may treat crypto swaps as taxable events, others might not have explicit guidelines. It is essential to consult a local tax professional or research the tax laws in your country to ensure compliance.
Benefits of Crypto Swapping
Crypto swapping has several benefits especially when you compare it with a traditional exchange or crypto trading. Some of the potential advantages of exchanging a crypto swap include:
- Speed: A crypto swap is the fastest way to go from one cryptocurrency to another. The speed enables the easy swap of trading pairs to hedge against risks. For instance, you can swap a volatile token for a stablecoin to preserve the value of your crypto assets until the price stabilizes.
- Ease of use: The crypto exchange process is pretty straightforward on most platforms. It is a one-step process and the swap is instant once the transaction is confirmed.
- Potential cost savings: Crypto swaps are affordable, especially on decentralized platforms. You only pay a small token on the transaction and you might even earn some profits in some cases.
- Portfolio diversification: Crypto swapping services allow users to easily diversify their portfolio for investment purposes or to leverage new projects.
Costs and Limits of Crypto Swapping
The crypto-swapping world offers significant flexibility. You can swap virtually any cryptocurrency for another one as long as it is available on the platform you’re using for the exchange. There’s no limit on the number of swaps you can do. However, some tokens are harder to find than others which leads us to the concept of liquidity.
This refers to how easily crypto assets can be purchased or sold on a trading platform without having a significant effect on their price. Some tokens have low liquidity, especially since many merchants only hold the popular tokens. This means the number of traders with new or lesser-known tokens is limited. This can cause delays and unfavorable prices when you attempt a swap. As new coins are being released daily, the liquidity of some tokens will be less than that of popular and established tokens.
So while it is theoretically possible to swap any amount of crypto tokens as many times as you want on most platforms, the availability of some tokens imposes a limit to such transactions. Transaction fees and network congestion are other factors to consider. If the network is congested, you might end up paying more fees for the transaction.
Conclusion
Crypto swapping is an end-to-end process that plays an important role in improving blockchain interoperability. For traders or crypto enthusiasts, learning how to swap crypto is important and can help them figure out how to quickly edge their funds against volatility or simply diversify their portfolio.
Swaps also play a crucial role in defining the premise for interoperability when working on a blockchain-based software development project. In cases like this, you should contact blockchain experts like CrustLabs for insights and guidance on your project.
FAQ
u003cspan style=u0022font-weight: 400;u0022u003eYou can directly exchange crypto assets of any kind through a crypto swap. However, some tokens have low liquidity and are harder to find in the cryptocurrency market. Your options can be limited in such cases and this can make them difficult to swap. u003c/spanu003e
u003cspan style=u0022font-weight: 400;u0022u003eYes, swapping cryptocurrencies is carried out on public blockchains and is traceable. Law enforcement agencies can even identify the parties carrying out these swaps where necessary. u003c/spanu003e
u003cspan style=u0022font-weight: 400;u0022u003eA token swap in cryptocurrency is a transaction that involves changing one crypto token to another one directly, without converting to any intermediary fiat currency. u003c/spanu003e