Token Swappers Are Replacing Traditional Crypto-Exchanges: A 2020 Analysis

While cryptocurrencies are powered by decentralized protocols, the trading of cryptocurrencies mostly happens on centralized exchanges.

For years, having an account on a centralized exchange was essential to buying or selling one cryptocurrency for another. 

There’s nothing inherently bad about using a centralized exchange, but you need to know that you are putting your funds at risk during the entire trading process.

Centralized exchanges like Binance, Coinbase, or Bittrex have been and can be hacked, and in most cases, they have no obligations to reimburse you of any lost funds. 

But the solution was right in front of us: smart contracts. Funds can be traded in a trustless, anonymous way by using smart contracts. That’s why DEXs (decentralized exchanges) were invented.

Most of these, from IDEX to ForkDelta, are all copies of their centralized counterparts with the sole difference being that they run on smart contracts.

These DEXs also come with advantages: there is no third-party risk, no KYC requirements, and no listing fees for the tokens. If there is enough demand, any token can be found on a DEX.

The problem with DEXs is their resemblance to centralized exchanges. They are coming with the same complex interface, an order book, and no liquidity.

It’s well known that centralized exchanges are investing huge amounts into market makers to ensure orders are always fulfilled in a good manner. DEXs are maintained, more or less, by the community.

The idea behind them was that people would prefer decentralization and liquidity will come naturally.

But this didn’t happen and the best guess as to why is because most new users found them too hard to use. I mean, why do you need to know about limit orders and token pairs when you only want to exchange ETH for BTC?

That’s how Token Swappers appeared!

I’m going to talk about the token swappers that I already tried, such as MoonDeFi, Uniswap, Curve Finance, and 1inch.exchange, as these new DeFi projects open up more opportunities for users as opposed to only allowing them to easily trade tokens in a decentralized way.

MoonDeFi

MoonDeFi is one of the newly launched token swappers. All tokens are being traded entirely on-chain using smart contracts. There is no order book and the user experience of this one is highly improved compared to traditional exchanges.

By joining MoonDeFi you can choose to participate in various ways:

• As a casual user, allowing you to quickly and simply swap tokens.
• As a liquidity provider, where you can pool your current tokens onto the platform and earn from the transaction fees paid by the casual users.
• As an arbitrageur, providing external price information and earning spreads between MoonDeFi and other markets.
• As a staking holder. This is a feature I haven’t seen in any other token swapper!

Once a liquidity provider, you will receive liquidity tokens in regard to your contribution. With MoonDeFi you can participate further by staking these tokens for high-profit rates.

As the rewards are being distributed among all participants and because MoonDeFi is a new project, the rewards for early users are insane. You can earn an APY of 30%-45% for staking LP tokens.

In addition, on the same principle, you can stake any other Ethereum-based token for similar rates (30%-40% APY), especially MOON tokens for the highest rate ( 150% APY). MOON is a token with limited supply (only 210 million tokens) which can lead to drastic benefits in the future.

If you are looking to add MOON to your portfolio, you need to know that the team is currently running an airdrop & bounty program where 10 million MOON (~$10 million) are being distributed to those who subscribe to their social media channels and help the project grow with a blog post or video about it.

Uniswap

Uniswap is a similar token swapper. Trades can easily be conducted on the platform without an order book or giving up control. You can choose to use it as a casual user or you can participate as a liquidity provider.

The protocol was created in 2018 by Hayden Adams, and the technology was inspired by Ethereum co-founder Vitalik Buterin. You can see Uniswap as the first of its kind, even if other new, improved projects have been launched since 2018.

Even if the project is around for more than two years, it got into people’s attention only this year when it announced the distribution of 60% of its genesis tokens to the early users of the platform.

The protocol’s native token is UNI and 1 billion of these tokens were minted when the project began. Because it is a governance token, the token holders are going to be part of the decision-making process behind the platform, and the team decided to bootstrap its distribution by giving each address that traded on the app 400 UNI tokens.

It was a great payday for anyone who supported the project, but unless you were part of those early users that opportunity is now long gone.

If you are looking for a place to trade your tokens, then the Uniswap platform has support for almost all Ethereum tokens, so you will certainly find what you’re looking for.

Curve Finance

Curve Finance is another token swapper and it joins the other liquidity aggregators by giving their users a chance to go beyond the casual user role and become a liquidity provider.

Curve wasn’t decentralized at launch, but it recently made its transition into a decentralized protocol with the addition of its governance token. It was launched in January of this year and has since become a popular platform to earn returns on.

The project founder, Michael Egorov, explained that Curve is “an exchange expressly designed for stablecoins and bitcoin tokens on Ethereum.” This means that the platform’s main focus is not supporting as many possible tokens but to offer some select ones, like USDT or DAI (stablecoins), or Ethereum-based Bitcoin tokens, such as renBTC or wBTC.

When the governance token was launched in August, the team decided to distribute 5% of the circulating supply to past liquidity providers. Similar to other protocols, they wanted to reward their early users who supported the platform in the beginning. But, this is another opportunity that already passed.

If you are looking to become a liquidity provider, Curve is still welcoming new users, especially if you are holding large amounts of stablecoins or Bitcoin-backed tokens.

1inch.exchange

1inch exchange is a place to swap tokens but, behind the scenes, it functions differently than the other protocols. It is a DEX aggregator which means that the platform aggregates all major DEXs in one place, making it easy for you to choose the best price among them.

And it’s not as easy as choosing the lowest price. For large amounts, it helps you split your trades across exchanges to minimize slippage and guarantee the best deal.

One thing remains the same: the platform is decentralized and you don’t lose control over your funds during the trade. You could obtain the same effect by using any of the DEXs it is using, but as you already know, these exchanges have liquidity problems.

However, with 1inch you can split your orders across exchanges while doing your trade-in one single transaction. But to do so, you still need to have knowledge about orders and those old traditional exchange terms.

If you are still into traditional exchanges or if you prefer a DEX, 1inch could be a good solution for all your trading needs.

These are the best four token swappers you can use to upgrade your trading toolkit for 2020 and beyond. It’s not just a matter of popular opinion, but each of these DeFi projects is working hard to improve the crypto space by offering a better user experience, new ways to earn interest on your tokens, and, if you join early enough you can have the opportunity to be rewarded for it!