8 minutes reading
As crypto markets evolve, innovations appear, targeting niche blockchain applications. We’ve seen DeFi applications expand blockchain’s territory, providing decentralized solutions for numerous industries. Other projects aim to improve blockchain’s overall performance. Consequently, the diversity of options creates a demand for crypto swapping services. Crypto swapping is designed to minimize costs for users and increase convenience. This is achieved by reducing the time required to exchange one crypto asset for another. The introduction and popularization of crypto swapping has led to profitable opportunities for users within the correct parameters.
This article explains what the technicalities are and expands in greater detail the mechanism around crypto swapping and how users can make money.
You will also find some platforms where you can start swapping.
DISCLAIMER: This article does not constitute financial advice in any form. Readers are expected to be fully aware of any risks involved in crypto lending and should only participate after appropriate research.
What is crypto swapping?
Crypto/token swapping has two recognizable definitions amongst crypto participants:
- The process of directly exchanging one crypto asset for another without having to conduct a crypto-to-fiat exchange.
- Exchanging one cryptocurrency for another following a platform’s change of blockchain. For example, when tokens are converted from an Ethereum based protocol to their native protocol, they conduct a crypto swap. The launch of a project’s mainnet for example requires swapping existing ERC-20 based tokens into the new native protocol tokens.
For the purposes of this article, we’ll focus closer on the first definition.
How does crypto swapping work?
Swapping crypto involves using crypto-to-crypto exchange services to obtain a token of your choice. Platforms such as Changelly, Airswap, and Shapeshift provide these services.
Crypto swapping is crucial for obtaining coins with low market capitalization. For instance, crypto exchanges offer to limit trading pairs of lesser-known coins. Crypto swapping makes a path for accessing your desired crypto. For example, targeting a hypothetical token $RIQ, you can swap Bitcoin in a $BTC/$ETH pair, obtaining $ETH, which you can swap for $RIQ in a $ETH/$RIQ trading pair.
Quite some work, right? In light of these challenges, wallets, exchanges, and other crypto swap sites enable instant coin swap functionalities. Users of these platforms simply enter an amount, select a trading pair, and the platforms instantly process and convert their tokens.
How to make money crypto swapping?
Given the inherent volatility of crypto assets, most crypto swapping opportunities involve a high degree of risk. Nevertheless, there is much reward in successful swapping.
Crypto traders can swap cryptocurrencies for profit using two ways:
- Swapping, then hodling – You can obtain lesser-known coins at bargain prices in most crypto swap sites. The trick/strategy is to identify a token minted by a promising project. As this project rises in popularity, its token will concurrently rise in value, earning you gains upon swapping or selling.
- Margin swapping – Users target getting more value from subsequent coin swaps. Market volatility plays a key role in margin swapping. Value differences arising from market volatility allow users to make significant gains from multiple, calculated crypto swaps.
5 things to know before you start crypto swapping
- Don’t forget Ethereum gas fees
Ethereum allows projects to create ERC20 tokens using smart contracts. These tokens must be processed through Ethereum, which requires a gas fee. Depending on market trading volumes, gas fees can be expensive, reducing your gains in every profitable trade. It’s worse for swapping as specific strategies require multiple coin swaps to make any gains.
- Get acquainted with exchange fees
Aside from gas, users must consider exchange fees, which vary considerably. Crypto swapping platforms will have these on their FAQs or highlighted before executing your transaction.
Importantly, counter-check your expected crypto from each swap. Some platforms will show a dollar equivalent of your desired token, which could be lower than what you expected.
- Use an appropriate wallet
Before sending your newly swapped crypto to your wallet, confirm whether your wallet supports it. Some tokens which were initially ERC20 tokens but moved to their native protocols will prove somewhat challenging to move. Ensure you cover all potential areas of discrepancies before you execute a transaction.
- Consider liquidity and slippage
Slippage occurs when a trade is executed at a different price than it was initiated. Crypto markets are volatile, and slippage will be inevitable in some trades. Some platforms place restrictions on slippage, preventing the execution of transactions if slippage exceeds a set threshold.
With liquidity, you’d expect swapping rates to remain unchanged regardless of quantity. That’s not the case. Swapping rates change to reflect available cryptocurrencies for swapping. Changing your transaction will attract higher rates from a token with limited liquidity.
- Maintain proven security practices
Where possible, use 2FA authentication to access your wallets and other accounts linked to your crypto activities. Don’t give your private keys to anyone, and don’t use them directly on a website. As always, if a deal seems too good to be true – it isn’t.
Use only trusted exchanges, keeping in mind their centralization. You relinquish your total rights to your crypto when you have them in centralized exchanges. In case anything goes wrong, you will not access your crypto until the problem gets solved.
The best crypto swapping platforms to make money
A selection of the best crypto swap sites or swap exchanges includes the following:
Swapy – It claims to offer competitive swap rates without manually placing buy/sell orders. Swapy manages this by combining 10+ exchanges to give users more low-cap and low liquidity tokens at spot price. You can swap BTC, ETH, and USDT into 70+ tokens, from XEM and REM to BCH and DASH. Besides, Swapy charges a fee only on the amount users save relative to competitor services.
Changelly – It delivers a fixed-rate mechanism, protecting against market fluctuations during the crypto swap. Changelly claims to assure stability by integrating a small reserve inside the exchange rate when providing a quote. Changelly supports over 150 cryptocurrencies, taking a 0.25% fee for all swaps.
Shapeshift – Shapeshift offers a unique exchange rate for each coin, changing every 30 seconds according to market conditions. It provides support for 29+ cryptocurrencies, including BTC and DAI. Shapeshift also features intuitive interface users will enjoy.
Changenow – A progressive platform, Changenow enables purchases with credit cards. This useful feature is unusual to see in the swap space. Changenow is secure, enforcing AML/KYC rules. It flags any suspicious transactions, pausing them while asking for confirmation of identity from transacting parties. There’s no limit swapping with support of 170+ coins, from BTC and ETH to BCH, LTC, and other niche altcoins.
The advantages of crypto swapping
You might be asking yourself what other advantages crypto swapping brings to the table. Here we outline the key benefits of swapping cryptocurrencies.
Ease of Access
Crypto swapping opens up access to lesser-known cryptocurrencies. Most crypto swap sites have deficient trading pairs or are unable to keep up with new token releases. Swapping makes it easier for users to access their desired cryptocurrencies by providing a route to obtain these assets.
Encourage growth in crypto
New crypto projects have limited avenues to expose their platforms. Crypto swapping exposes these projects to wider markets by listing their tokens in trading pairs. Though low-ranked, high-risk users will find these tokens and bet on them. This promotes the growth of developing solutions through trading activities.
Convenience
A glimpse of popular exchanges highlights how expansive the blockchain’s ecosystem is. To effectively co-exist, users need swapping solutions to cater to dynamic market demands. Crypto swapping enables profitable coexistence as users swap one crypto for another. It also diversifies market offerings, subsequently creating other revenue-generating activities. For example, platforms can earn through charging reasonable fees on swapping.
Mainstream adoption
Fiat is known for its convenience and ease of swapping, attributes which are keeping many in fiat. Crypto swapping’s simplification of coin swaps will increase mainstream adoption.
Do you pay taxes when swapping crypto?
Taxes depend on your jurisdiction. For instance, the IRS provides clear guidelines on taxable crypto activities. Crypto swapping is described by the IRS as “buying one crypto with another crypto.” Crypto gains fall under capital gains, attracting a tax of between 10% and 37%. US residents must declare any earnings from crypto swapping as they could face penalties. Residents in other countries must consult with a tax professional to avoid any conveniences. Where possible, use tax software for accurate remittance.
Frequently Asked Questions (FAQs)
What does it mean to swap crypto?
To swap cryptocurrency is to exchange one crypto for another without using any crypto-to-fiat solutions during the process.
Why are crypto swaps so popular?
Users benefit from crypto swapping activities. You can earn from strategically swapping, gain access to nascent tokens and projects, and help crypto grow. Nevertheless, its main driving force is crypto profitability.
Where can I swap my crypto?
Crypto swap sites are ideal platforms to swap cryptocurrencies. Consider platforms such as Changelly, Changenow, Swapy, and Shapeshift, which provide adequate swapping services. Before committing to any platform, ensure its services support your tokens and your swapping strategies.
Are there risks involved with crypto swapping?
Yes, there are several risks. These include:
- Custodial risk – you can lose your crypto if something happens to a protocol where you’re conducting your swap.
- You risk losing your crypto in targeted phishing scams, hacks, and other technical exploits.
- There’s no regulatory body; thus, you’ll lose your crypto in case of wrong address input or such occurrences.
- Losses arising from market volatility.
DISCLAIMER: This article does not constitute financial advice in any form. Readers are expected to be fully aware of any risks involved in crypto lending and should only participate after appropriate research.
Stay tuned via KALLIS’s social media to learn more about what’s to come.
