Token Swaps Explained, Or What EOS, TRON And Storj Have In Common
A token swap, also known as token migration, is the process of transferring digital tokens from one blockchain to another. For users (token holders, investors) it looks like regular token exchange. The exchange, because a token swap cannot be called a purchase. So, before investing in cryptocurrency of a blockchain startup, you should be aware of whether token migration will ever occur in the future.
A good real-life example is getting a new bank card instead of the old one, which got outdated or was lost or stolen. A bank customer receives a card with the same amount of funds on it. If for some reason the client does not have time or possibility to get a new card in time, the old card becomes invalid.
The same thing happens with old tokens that were bought during an ICO campaign. As a rule, the company that conducts a token swap gives its users a certain amount of time to transfer their tokens to another platform. People who do not exchange their tokens in time, remain with old digital assets that no longer have any value. The difference is that a bank card can be obtained later, and new tokens can only be purchased again.
Why do token swaps occur?
The question should rather be formulated this way: why is there even a need for token swaps? All reasons come from the lack of resources — financial, technical or both.
A special case of a token swap is the project migration to the mainnet, a working version of a blockchain. Many projects initially do not have enough funds to develop their own platform. In this case, they run an ICO campaign and use a publicly available blockchain. Ethereum is often used for this purpose, and all crypto coins of the project are created on the basis of the existing standards of Ethereum.
Well-known examples of token swaps
There are three famous projects that performed token swaps. They all are different, and only token migration from one blockchain to another unites them.
Initially, TRON tokens (TRX) were based on the ERC-20 standard, and the project itself worked on the Ethereum network. From the very beginning, the TRON Foundation team intended to switch to their own blockchain once they collect enough investments for this. Before this happened, they had been promoting TRX.
The TRON token swap was carried out gradually, in several stages. First, the developers started the testnet — a "draft" version of the platform. After the testing was finished, the release of the mainnet took place.
The creators of the EOS platform also used the Ethereum blockchain. It took them almost one year to sell all tokens during the ICO. The next day the ICO was over, they released the EOS blockchain. It is noteworthy that it was one of the most successful ICO campaigns in 2017. The team has managed to attract several hundred thousand dollars during the first few hours. As of October 2018, EOS is at the fifth position by the cryptocurrency capitalization rate.
In this case, tokens did not swap to their own blockchain, but from one public network to another. The migration from Bitcoin to Ethereum started in 2017. As the developers announced, the reason was the best scalability and speed provided by the Ethereum platform.
These are just a few examples of projects that performed token swaps. In fact, their total number is much larger. A token swap is a common practice, although it is not so easy to implement. We will discuss the difficulties, advantages and disadvantages of token swaps in the next article.