Token Swaps: Getting Around The Blockchain Creation Dilemma

An increasing number of blockchain startups face a dilemma: they want to issue tokens to fund the development of their own blockchain, but they need a blockchain to issue those tokens. Is there a way around? What role Token Swaps play in this situation?

Sure. Native blockchains and tokens give projects a unique opportunity to raise money faster than traditional fundraising methods, while keeping full control over the entire process.

But let’s face it: building a blockchain doesn’t come cheap. So, how companies can issue tokens to raise funds without having their own blockchain? One word: ERC-20.

The ERC-20 standard is the go-to alternative (but not the only one) for many projects, as it allows them to have their own tokens as part of the Ethereum blockchain.

Examples? ICON, TRON and AION have already relied on ERC-20 tokens to raise funds while they created their own blockchains.

Okey. So there’s a way to bypass the blockchain creation dilemma after all. Companies aiming to fund the creation of their native blockchain via token sale can do it by creating tokens in an existing blockchain. But what happens when their own blockchains are ready…?

Hello Token Swaps!

A token swap, also known as ‘coin swap’ or ‘token migration’, refers to the exchange of one cryptocurrency for another at a fixed rate. No, it’s not like selling one token and purchasing a different one. Instead, think about it as the replacement of one coin for another (1:1).

If you have created Ethereum-based tokens to raise funds for your project, eventually you’ll want to bring those backers of your company to your own ecosystem. A token swap allows everyone who has initially purchased or received your ERC-20 tokens to exchange them for your new native tokens.

Ok. This is crypto… What are the risks involved?

As a holder, a token swap does not represent a big risk. The main thing is not to miss the deadline. Exchanges usually allow people to perform these swaps during a specific period of time. If you’re expecting the company you’re backing to open a token swap, then make sure to subscribe to their announcements.

There’s also an ‘operational risk’. And by that I mean the chance of you pressing something wrong and blowing up the entire operation (yes, it can happen). Of course, this largely depends on the exchange conducting the swap.

Clear Process, Happy Clients

In the last year, several exchanges have started offering token swaps. LATOKEN is one of the few exchanges with sufficient technical capability to provide smooth token swaps. The exchange has integrated over 10 native blockchains to date and it’s currently conducting a DBET Token Swap from ERC-20 Tokens to VeChain-based tokens.

Despite DBET is not moving its community from ERC-20 to their native blockchain, this is a good example on how exchanges are actually making it easier for token holders to migrate from one blockchain to another.

Check it yourself…

To summarize, a token swap provides companies the piece of mind that they can fund their businesses by using other blockchains, and then migrate their backers to a native blockchain (once it’s ready). For clients, just an easy, fast and secure way to exchange tokens.

By Matias Lapuschin