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Clemen Chiang

Ph.D. | CEO | Investor | FinTech in Stocks | Blockchain in Cryptos | Singapore

Token Swaps In The Evolution Of Cryptocurrency 23 Oct 2018

Token Swaps In The Evolution Of Cryptocurrency

Many traders will agree that we can’t have a true cryptocurrency exchange without an effective, secure token swap system. Token swaps provide the chance to switch out tokens from one blockchain for another. The idea here is that it allows a trader to improve their investments, while also allowing new companies to thrive in the industry. The question is, what does this evolution mean for currencies like Ethereum? Will token migration and a change of direction by new ICOs send ETH deeper into its downfall?

The basic principle behind the token swap is nothing new.

There are often swaps in traditional banking as one form replaces another. There are many reasons for this:

  1. outdated coins are replaced by a new version.
  2. new denominations occur and need to be brought into the chain.
  3. banknotes require new security measures.
     

However, it is a slightly different game when it comes to cryptocurrency. The ratios remain the same. One unit of the new, desirable currency is equal to that of the old, undesirable one — one dollar’s worth from one form in exchange for a dollar’s worth of another. There is also that same sense of replacing the obsolete with something more relevant.

The difference is that the currency isn’t always like for like.
Users can swap new currency units for old ones at the same rate. If we want a good example of this, there are no better places to turn than to Tron and EOS — two of 2018’s major players. These companies began life on Ethereum and ERC20 tokens — as many startups do. As they progressed and grew, they switched focus to their own blockchain and a stronger identity. It was then time to swap out the Ethereum for their own tokens and cement their brand, which meant a 1:1 token swap.

Goodbye Ethereum and hello shiny new stable coins?
This raises some questions over the role of ETH and other leading cryptocurrencies if these token swaps become more common. With Tron and EOS, ETH was little more than the entry-level product — a stepping stone to bigger and better things. Token exchanges allow investors to discard their ETH, or other currencies, and enjoy the trendiest tokens from these new providers. And when we say discard, we are being literal. All the unwanted ERC20 token EOS and Tron received in these swaps were burned.

So what does this mean for ETH, which is already having a pretty turbulent year?
This may have a negative influence on the presence of Ethereum, which is already struggling in a fight for 2nd place against Ripple. Tron and EOS aren’t alone in this mass-migration away from Ethereum. ICON, Augur, Zilliqa and many more have shifted to their own blockchains, or are in the process of doing so. Ethereum seems less like the heir to the crypto-throne and more like a charity bled dry by its beneficiaries.

Still, there is the potential for many cryptocurrency veterans to see a similar fate.
At this point, it is also important to look at the place of Tether in this situation. On October 19th it was reported that Tether experienced an outflow of $610 million in October. Meanwhile, no new tokens have entered circulation since September 21st. One contributing factor here could be the amount of token swaps. Major players and whales are swapping vast amounts of USDT for new stable coins from start-ups like Gemini and Paxos.

Atomic swaps increase the appeal and ease of use for users.
There was a point where these swaps felt a little risky. Traders could send large sums of money to exchanges and receive nothing in return — another gamble in the volatile cryptocurrency world. Atomic swaps offer a bigger guarantee. Both sides have to fulfill their end of the arrangement or the whole deal is off. Therefore, atomic swaps are far safer and more appealing than their name suggests. This safety net will only encourage more traders to swap their ETH coins for something “better”.

It is all about out with the old and in with the new when it comes to these token swaps.
There is no doubt that an increase in token swap platforms and apps can only help new companies pursue their own blockchain ventures. Atomic swaps will add security to the process and help traders swap their ETH or USDT for something new and exciting. Therefore, token swaps are sure to play a big role in the evolution and future of the industry. Evolution means survival of the fittest, so time will tell where Ethereum fits in.

References:
1. https://www.coininsider.com/what-is-a-token-swap/
2. https://www.ccn.com/tether-has-yanked-610-million-out-of-circulation-this-month/
3. https://blockwolf.com/token-swaps-and-atomic-swaps-explained/
4. https://bitcoinexchangeguide.com/why-you-should-expect-ethereum-to-eventually-hit-zero-the-ultimate-eth-bear-case/

InvestingToken SwapsAtomic SwapsEthereum
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