What Is Swap?

A user swapping on a decentralized exchange connects their wallet to the application, selects the token they will give and the token they will receive, and signs the transaction. The transaction usually takes place in a liquidity pool: the user adds one token to the pool, receives the other in return, and the price is determined by the ratio of assets in the pool. Aggregators, on the other hand, can split the transaction across multiple pools to find a good price. In addition to the protocol's trading fee, the user also pays the network's gas fee.

The term is also used in other senses. 'Coin swap' or 'token swap' also describes migration processes in which a project moves its old token to a new contract or to its own mainnet; in this case, the old tokens are exchanged for new ones at a certain ratio. Cross-chain swaps exchange assets on different blockchains; the type done without an intermediary is called an atomic swap. In derivatives markets, 'perpetual swap' is another name for perpetual futures contracts.

In swap transactions, price slippage, fake token contracts and spending approvals granted to tokens are the main risks. Because counterfeit tokens issued with the same name and symbol are common, it is important to verify the contract address from official sources; fake 'swap' sites impersonating token migrations are also a frequently seen scam method.