Token Swaps vs. Token Migration in Cryptocurrency Ecosystem

Token Swaps vs. Token Migration in Cryptocurrency Ecosystem

  • Token swap and token migration are changing the crypto-to-crypto trade exchange for users, investors, and developers. 
  • Technical differences between token swaps and token migration. 

Among the numerous advancements and innovations that the cryptocurrency world has in store for its users, token swaps and token migration have played the most critical role. Although the terms are used synonymously by the crypto users, token swap differs from token migration as the former is conducted on an individual level, while the latter works on a project level. Despite their differences, both operations have been described as secure, user-friendly, and economical by the experts for managing digital assets. 

Token Swap vs. Token Migration

Token swap, aka coin swap, is essentially a process that involves the digital exchange of one token with another token of an equivalent value. Exchanging Tether (USDT) on a decentralized exchange (DEX) with Ethereum (ETH) is a simple example of a token swap. Regular token swaps happen within the identical  blockchain. In contrast, the instances where the tokens are moved between two different blockchains fall under the category of cross-chain token swaps. 

Depending upon the type of token swapping, the function can be conducted in four different ways. In the case of regular swaps, both centralized exchanges (e.g., Binance) and decentralized exchanges (e.g., Uniswap) or wallet apps (e.g., Metamask) can be utilized. On the other hand, cross-chain token swaps are facilitated via blockchain bridges such as Anyswap, Portal Token Bridge, and Celer cBridge. 

Although swapping famous cryptos like Bitcoin or ETH is an effortless task, users might not be in for a profiting deal if they opt for trading less popular tokens as the availability of the same is quite limited. However, recently many crypto exchange services (e.g., Airswap and Shapeshift) in the market have been sourcing their liquidity to the users to solve this problem. 

The  investors go with this reason because token swapping allows them to liquefy their cryptocurrencies and quickly trade them in case of certain emergencies. On the flip side, token swapping has the disadvantage of a lack of privacy for the users as the swap is publicly visible. 

Unlike token swapping, where an individual holder can execute, token migration works for blockchain projects and involves transmitting tokens from one blockchain to another. It is worth noticing that the replacement token starts existing once the transfer is complete. A well-known example of token migration is the transfer, aka migration, of Mithril (MiTH) from a blockchain like ETH to Binance Chain (BNB). Token migration is usually done to exploit the benefits of fast transaction speeds and lower fees provided by the new blockchain network. 

Cryptocurrency projects use a  fundraising technique, i.e., Initial Coin Offering (ICO), and build second-layer tokens on the top of existing blockchain networks. Several crypto startups create standard ERC-20 tokens on the ETH ecosystem and then trade them with the investors in exchange  for existing cryptocurrencies. Once the project is funded and completed, these tokens are migrated from ETH to their native blockchain.  

The process of token migration has been simplified over the years. Most crypto projects create tools  to help their investors in migrating their native tokens to a new blockchain. Other projects reduce the active participation of the token holders by taking snaps of the holder’s cryptocurrency wallets and subsequently airdropping the replacement token on the succeeding chain.