The crypto industry prioritizes the seamless process of swapping digital assets. On any centralized exchange, it’s as easy as selecting an amount of coins you already own, and trading it for an equivalent amount in any cryptocurrency you wish. With the thriving volume of customers on centralized exchanges and simplicity of use that allows the trade of fiat to crypto or vice versa, why is there a need for complicated token swap platforms? Furthermore, these are usually more expensive and do NOT accept fiat-currencies. So why bother using them?
Here’s why.
It’s about what’s really happening behind the scenes. Both centralized exchanges and token swap platforms have contrasting economics at work.
Centralized exchanges operate under a central organization. This organization oversees and executes all transactions and is relied upon for the exchange to function. This layout is essentially the same as a bank although the rewards are higher. The tasks are all performed by the exchange making the process very simple. On top of that, the expenses on a centralized exchange are generally cheaper for now, and the price you’ll pay for your crypto will be better due to the high number of users boosting the liquidity volume. The downside?
Centralized exchanges have a central point of failure and are subject to hacks, which means a breach in the exchange security could leave you cryptoless. Yes, if you’re using a reliable exchange (Crypto.com or Binance for example) the stolen crypto is usually returned.
This issue isn’t only about hacks. It means the government, the exchange, or an authority can seize funds, cut off your access to sending money to your exchange account or even take your money out. You might have the password to access your account, but the crypto is not actually yours. The exchange owns it. If push comes to shove and issues arise, the crypto is technically under their ownership.
Token swap platforms have no agenda. There’s no sign up process or identity involved, so your crypto is safe from seizure or hacks in most scenarios. All that’s required from the user’s side is a wallet to hold ownership of cryptocurrency and a private passkey to protect it. The only way the account can be touched is through your unique passkey.
From there, the user is in control of any transactions – which is not difficult, but knowledge is certainly required. All orders are fulfilled by smart contracts that have multiple protocols and mechanisms in place to maintain a stable level of liquidity. Additionally, token swap platforms such as 1Inch or PancakeSwap can leverage liquidity from a centralized exchange if needed.
Another benefit of token swap platforms is they offer rewards for using the platform such as liquidity pool access, staking, and farming.