Coin Swaps
To swap coins means to exchange one coin (say coin ABC) directly into another coin (say coin XYZ)
Usually, swap does not include going into stable coins (let alone fiat, like USD). Even if swapping entity (usually some online exchange or a swapping website) uses stable coins in the process, that is imperceivable to a user requesting a swap.
Each swap involves at least two parties (sometimes more, but that is irrelevant to a user):
- A user who wants to accomplish a coin swap (say ABC for XYZ) and
- Swapping entity, usually some online exchange or a swapping website that provides a service of swapping coins to a user
Swap involves two separate transactions:
- ABC coin moves from user’s ABC wallet to swapping entity’s ABC wallet
- XYZ coin moves from swapping entity’s XYZ wallet to user’s XYZ wallet
User bears the cost of transaction fees for both transfers. On top of transaction fees that are paid to respective coin networks, swapping entity charges certain percentage fee (commission) for providing the swapping service. One transaction fee (for XYZ coin) and a service fee paid to a swapping entity are embedded into swap rate provided to a user. Swapping commission is usually around 1% to 2% of the value of coins swapped.
From users perspective, they sell coin ABC and buy coin XYZ at the same time as part of the swap process.
Swap Process
There are several steps in the process of swapping coins. Let’s see how would a swap of ABC coin for XYZ coin look like:
- User expresses their interest to swap ABC coin into XYZ coin
- Swapping entity provides rate of exchange or how many XYZ coin it will deliver to a user for their ABC coin (remember, the swap rate includes commission and coin delivery transfer fee)
- If swap rate is acceptable to a user, they confirm they want to proceed with a swap
- Swapping entity requests from a user to provide their wallet address where coin XYZ will be delivered (sent to) upon successful swap
- User provides XYZ coin wallet address (and optionally, ABC coin refund address in case something goes wrong and a swap cannot be performed as originally planned)
- Swapping entity provides user with a wallet address where user is to send their ABC coin to (note that coins like XLM or XRP will also require memo to uniquely identify the transaction)
- User sends their ABC coin to an address provided by the swapping entity (note that memo must be used if it was provided by swapping entity). User pays transaction fee to send their coins out of their ABC coin wallet
- Swapping entity confirms it has received ABC coin
- Swapping entity performs the swap (exchange of coins)
- Swapping entity sends coin XYZ to user’s XYZ coin wallet
- Swap (transaction) is completed!
- User may want to confirm they have received XYZ coin (using outgoing hash and corresponding blockchain explorer or simply checking the balance of their XYZ wallet)
Best Swap Rate
More and more websites (swapping entities) offer swapping coins. The competition is fierce, which is always good for users as quality of service increases and commissions decrease. I never had any issues swapping coins on any of the websites I used in the past:
Theoretically, a swap site can take user’s ABC coins with a promise to deliver XYZ coins. Yet instead of delivering XYZ coins, it simply steals ABC coins. Therefore, users need to be cautious only to deal with well established swapping entities, with some reasonable history and good reviews/reputation. Scammers are usually quickly pushed out of existence.
In general, it is hard to keep up with all the options as to where the best place is to swap coins. Sometimes you can get a better deal than with the swap website you may be used to. Although there is a risk of using new providers, it may still be worth doing some research before the swap, especially if you haven’t done coin swaps for a while.
Most of my swaps start with going to SwapSpace.co
Different swapping entities deal with different coin pairs. In other words, not every coin swap combination can be performed on any coin swap website. Thus once you know what coins you want to swap, check SwapSpace.co first to see the trustworthy exchanges and their rates.
Floating vs Fixed Rate
Floating rate is usually better than fixed rate. However user accepts the risk of rate changing during the swap process. When markets are (crazy) volatile, this may not be a good idea. However, most of the time, markets are quiet and going for a better rate pays off. Also note that if rate changes during the swap, sometime it can change for even a better one!
Fixed rate does not carry a risk, but you usually get fewer coins if you choose fixed rate. You can see in the video below how I was pleasantly surprised when I encountered an odd case of fixed rate being higher (better) than the floating rate.
XLM to ETH Swap [Video]
Have a look at the entire process of swapping Stellar Lumens (XLM) coin into Ethereum (ETH) coin I performed on ChangeHero website:
