Decentralized Finance – The Dollars and Sense of Exchanges and Swaps

What’s a coin exchange? No, it’s not when you give your friend five cents and collect back ten cents. If you’ve ever heard Colin Lucas’ classic hit “Dollar Wine“, you know we’re all about the big money down in the Caribbean. Exchanges allow you to buy and sell cryptocurrency with a bank transfer or a credit card, according to Time Magazine. Swaps, on the other hand, are sites (or dapps) that will enable you to exchange one cryptocurrency (or token) for another. According to Investopedia, some of them use automated means so that your value never even goes through an intermediary. 💰💰💰

Why do Swaps Exist?
You ever “mind a mark” in Play Whe? “Minding a mark” means that you keep playing it and increasing the amount you spend on it until the mark buss. When it does, you make back the money you “invest” in it (theoretically). You might have your crypto money stored in a coin, but it starts looking a lil shaky like a hard breeze could blow it down. You could stay in it, but you stand to lose all the money you made on the investment. What do you do? Swaps exist to allow you to exchange a cryptocurrency for another one almost instantaneously. It’s like cashing in your chips and deciding to mine another mark once you win the previous one.

What’s in a Swap?
Many swaps are operated independently of exchanges, although some exchanges also utilize automated swap systems. Swapping out your currency for another one helps you to retain the value of your investment without being affected by price changes. With cryptocurrency such a volatile asset, this is a concern that most investors who have money in these assets have. Corporate Finance Institute has a great primer on understanding how swaps work. Gadgets 360 gives you an overview of how cryptocurrency wallets differ from exchanges. In the next article in this series, I’ll explore coins, value and what you can use to spot the good ones.