Practical understanding: why crypto swaps are becoming essential

Each digital coin begins its existence on a specific blockchain. But sometimes developers decide to migrate their project to another network or modify the cryptocurrency itself. In such cases, a swap is needed — a mechanism that allows users to exchange one asset for another according to pre-agreed rules.

Main Use Cases for Swap

A swap is not just a technical procedure — it is a strategic step for crypto project developers. It is most often used in the following cases:

Updating and Reloading Cryptocurrency. The issuer can change the token’s characteristics — switch to a new ticker, expand functionality, or revise emission rules. The old asset is replaced with a new one precisely through the swap mechanism.

Migration Between Blockchains. The most well-known example is the transformation of BNB. This token was originally created on the Ethereum platform as an ERC-20 standard back in 2017. When Binance launched its own blockchain (BNB Chain) in 2019, a large-scale exchange began: users were offered to swap their ERC-20 tokens for native BEP-2 standard tokens. Some owners still transfer BNB via Ethereum, demonstrating how such transitions can be long-term.

Changes in Economic Model. When a project revises its economic strategy, introduces new staking conditions, or changes reward distribution principles, a new token is often created to replace the previous one via a swap process.

Mergers and Splits of Projects. If two or more projects merge or split, there is a need for a new cryptocurrency, which users receive as an equivalent of their previous assets.

How a Cryptocurrency Swap Actually Works

A swap is a process of directly exchanging one digital asset for another without intermediaries. Depending on implementation, the mechanism can work differently:

• The user transfers tokens to a special account or smart contract and automatically receives new assets
• The (exchange or wallet) platform performs the swap independently, deactivating old assets and crediting new ones
• Community members receive new assets, while old ones remain in the account but lose relevance within the project

Each project can define its own swap logic depending on its needs and technical capabilities.

Terminological Confusion Around Swap

In the crypto community, the term “swap” is often used somewhat vaguely. There are technical differences between:

• Token Swap — exchanging tokens that exist on the same blockchain
• Coin Swap — exchanging native coins of different networks
• Coin-Token Swap — exchanging a coin for a token of another blockchain

At the same time, the term “token migration” is often used as a synonym for “swap,” although technically migration is moving between networks, and swap is the actual asset exchange agreement. For users, this difference is not practically significant — the result is the same: replacing one asset with another.

Advanced Mechanisms: Atomic Swaps and Bridges

Atomic Swap (atomic swap) is a revolutionary technology that allows direct cryptocurrency exchanges between two participants without a centralized exchange. The process is controlled by a smart contract, which guarantees that both parties fulfill their obligations simultaneously. Users agree on the price and quantity, and the system automatically executes a double transaction.

Cross-Chain Bridges are technological solutions for transferring assets between independent blockchains. Bridges can work with different standards (ERC-20, BEP-20), as well as with native coins and tokens built on various technologies. They often use wrapped tokens or liquidity pools to facilitate operations.

Wrapped Tokens: a Copy of the Original on a New Blockchain

Wrapped Tokens (wrapped tokens) are representations of original assets on other networks. For example, wBTC is an ERC-20 token that duplicates the original Bitcoin but exists on Ethereum. Each wrapped token is pegged to the value of the underlying asset.

The “wrapping” process involves interaction with a custodian — an organization that holds the original coins:

1. The trader sends real coins to the custodian’s account
2. The custodian issues an equivalent amount of wrapped tokens
3. The owner can use these assets on decentralized exchanges or within the ecosystem of the new network

This solution improves interoperability between blockchains, allowing the functionality of one token to operate within another network’s environment.

Forks: Similar Phenomena, Different Consequences

The concepts of soft fork and hard fork are often compared to swaps due to superficial similarities, but they are different phenomena:

• Soft Fork is a modification of the blockchain code without creating a new asset. Functions are changed, but the token remains the same.
• Hard Fork involves significant changes that create a new incompatible blockchain and a new cryptocurrency.

Unlike a swap, forks do not involve the direct replacement of one asset with another, although the result can be the emergence of a new cryptocurrency.