Coin Swap

Coin Swap mechanism

Coin Swap is the mechanism employed to move cryptocurrencies from one blockchain to another at a pre-determined rate. As the coins on the initial blockchain may be incompatible with the new one, it becomes necessary to initiate a swap to carry users from the old blockchain to the new one.


The Coin Swap Mechanism

A Coin Swap is used by developers when they want to carry users from one blockchain to another. This is usually done when projects want to start working or port their token to a new blockchain. When a swap is initiated by a user, the swapped coins from the initial blockchain are burned (forever put out of circulation) in exchange for coins from the new blockchain at a pre-determined rate. Once a coin has been swapped and burned, it cannot be redeemed back by the user; swapping coins is a permanent process.

Variable Swap Rate

Developers are free to decide on whatever swap rate they want to apply to the coin swap. For example, a 1:1 ratio means that a user would receive the same amount of coins he swapped. However, there are many reasons why developers would want to set a different ratio, such as a change in the total supply, a change in the inflation rate, and etc.

Coin Swapping As A Funding Mechanism

Projects who want to start working or port their token to a new blockchain can also use this opportunity as a funding mechanism. One typical way to do that is to inflate the coin/token supply of the new blockchain and set a portion of it to be given to swappers who include a Bitcoin (or any prefered cryptocurrency) contribution into their swap. For example, a project could offer a 1:1 coin swap to its users and also offer the possibility for people to add a set percentage of the total value of their coins in Bitcoin. In exchange for for the contribution, the user receives a bonus in coins from the new blockchain. The Bitcoin contribution is what constitutes the funding the team gets from the swapping process.

External links

See Also on BitcoinWiki