The increasing popularity of cryptocurrencies was accompanied by various supporting systems enriching the decentralised economy and enhancing its flexibility. Holders of digital coins can convert their assets using crypto swaps or exchanges to discover different use cases and engage in different DeFi activities.
Due to the rapid changes in decentralised economies, it is easy to confuse crypto swapping with exchanging. Although both approaches have similar functions, they work differently. For businesses, offering a crypto swap vs. exchange platform is a major challenge, and we will discuss and analyse the differences in this article.
Key Takeaways
- Cryptocurrency exchanges and swaps are two ways to convert crypto assets.
- Exchanges require selling a coin and buying another using an intermediary currency, leading to higher transactional costs.
- Swapping cryptocurrencies involves direct conversions from one coin to another by matching each coin’s price.
Understanding Crypto Swapping
Swapping cryptos entails converting one asset into another directly without middle operations or fiat currencies. Classically, converting Bitcoin or Forex currencies involves the USD as an intermediary currency.
For example, converting Mexican Pesos to the Japanese Yen requires USD/MXN and JPY/USD operations. Similarly, Bitcoin to Ethereum requires selling BTC for USD and then buying ETH using USD.
However, directly changing Bitcoin to Ethereum is easier, faster, and more cost-efficient than selling and buying. Moreover, swapping assets gives little regard to market liquidity and order books, focusing on how much users must give in one digital coin to receive another.
Understanding Crypto Exchanging
After understanding what a swap is in cryptocurrency, let’s explain its counterpart, crypto exchanging, or trading. This approach is more traditional, requiring users to sell their cryptos before buying another.
Crypto exchanges are conducted over marketplaces that pool users and digital assets and offer DeFi currency trading pairs for buyers and sellers.
In this classic trade mode, to convert from Bitcoin to Ethereum, for example, a user must join a marketplace to sell their BTC for USD. Afterwards, they can buy ETH separately according to the ETH/USD price.
This operation involves trading markets’ factors like order books and crypto liquidity that impact finding a matching order and transaction fees. There are two types of crypto exchanges you can offer. Let’s explain the difference between CEX and DEX.
Centralised Exchanges
A centralised exchange is a marketplace controlled by a central authority that processes and settles transactions. These markets work similarly to stock and Forex marketplaces, where most transactions involve the USD as central currency and operations are processed using a centralised server.
Moreover, deposited funds and purchased assets are stored in the user’s account on the website’s custodial wallet. These platforms source crypto liquidity from different channels and providers and offer various trading capabilities like margin trading and futures contracts.
CEX examples: Binance, Kraken and Coinbase.
Decentralised Exchanges
The other way to exchange crypto assets is by using decentralised exchanges, which do not involve centralised management to run operations. Instead, smart contracts are utilised to initiate, validate and process transactions and trades.
This self-executing mechanism focuses on platform automation and removes the need for intermediaries. Additionally, trade orders and exchanges are done when users connect their wallets with the platform without storing their funds and account information on a centralised server.
DEX examples: Uniswap, Curve PancakeSwap.
Crypto Swap vs Exchange: Head-to-Head Comparison
Crypto businesses offer swaps and exchanges on their platforms to facilitate conversion between decentralised assets. But what model is better? And is converting crypto the same as selling? Let’s compare the processes for each type.
Transactions Process
Crypto swapping happens on decentralised exchanges where cryptocurrencies are priced against each other, and users can directly view how much they need to give from their holdings to obtain other coins or tokens. Crypto swap platforms use smart contracts to automatically execute orders and process transactions on the user’s wallet.
On the other hand, crypto exchanges happen on centralised and decentralised platforms, which work similarly to traditional financial markets. They gather crypto users, consolidate order books, and channel liquidity from various sources. Exchanging cryptocurrencies is more like trading, entailing users to sell one coin before buying another.
By April 2024, over 600 crypto exchange platforms were counted worldwide.
Security
Both practices require the utmost security protocols. However, centralised crypto exchanges store users’ funds and digital wallets’ private keys, while swaps are mostly done over DEXes that do not store security data.
Cryptocurrency swap is safer because it entails fewer operations and intermediaries, minimising security exposure or cyber threats.
Transactions Fees
Exchanging cryptocurrencies involves intermediaries and multiple operations, entailing higher processing fees, conversion rates, and third-party commissions.
On the other hand, swapping crypto coins does not imply a middle currency and is conducted using smart contracts that do not charge service fees, making them a more favourable option for users.
Executing Speed
Cryptocurrency swaps are faster because they utilise blockchain technology and self-executed contracts that process transactions once certain conditions are met. Moreover, they involve fewer intermediaries and operations, which makes them faster than trading.
Conversely, exchanging crypto assets takes more time than a simple swap because it requires two separate transactions (selling and buying) and utilises third-party services, like currency conversion, matching engines and liquidity consolidation.
User Experience
Cryptocurrency exchange platforms work much like trading systems, displaying charts, trading orders, cryptocurrency pairs, and price action.
On the other hand, crypto swap platforms are easier to navigate. Users only need to connect their swap wallets, choose the currencies they want to swap and view the associated prices.
Swap or Exchange: Which One Shall You Choose?
Choosing the right feature for your crypto business depends on many factors. If you are launching a brokerage platform, then you need crypto exchange software to execute trade orders and match orders supporting a wide range of crypto coins, tokens and assets.
However, instant crypto swaps can take your crypto platform to the next level, offering advanced features that align with the changing user preferences. Crypto holders prioritise fast and secure transactions, which are available using swap platforms.
Instant Crypto Swap Wallets
As bull crypto markets grow and trading activities increase, investors and users are looking for the fastest and best way to swap cryptos and pursue their profitable trading strategies.
B2BinPay swap wallet offers the best tool for crypto businesses to manage their funds and payouts with higher flexibility and customisation.
Crypto swaps with B2BinPay solutions are not only a safer and more cost-effective way to manage your crypto capital, but they also respond to the changing user preferences and allow you to attract more users to your platform.
Conclusion
Swapping and exchanging cryptocurrencies might be similar as both facilitate conversions from one digital asset to another. However, crypto swaps are more direct and safe, implying no intermediaries or exchange fees.
On the other hand, exchanges work similarly to trading, where crypto assets are bought and sold in marketplaces between market participants, taking into consideration market liquidity, order books and fiat currency exchange rates.
Adding a swap wallet solution to your platform can elevate your processes by offering the most demanded functionality that allows users to quickly and safely convert their funds.
