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Token Swaps & Trading On Decentralized Exchanges (DEX)

Published on 2021-09-21

Yield farming is a process that involves lending or staking crypto assets to generate rewards or high returns as passive incomes in the form of additional cryptocurrency


What Is Swapping?

Swapping is a popular tool in the Solana decentralized finance industry. Swapping allows investors to substitute their Solana asset for another without necessarily adding new frameworks, support structures, or code.

The process involves exchanging Solana for another asset, say Ethereum or Bitcoin, on a one-on-one ratio. This can involve swaps between Solana and stablecoins such as USDC and USDT, or any one of the hundreds of tokens that exist within the Solana ecosystem thanks to Solana's SPL token program.

For instance, if you swap Solana worth $500 for Ethereum (or vice versa), the process will replace the SOL in your wallet with ETH worth $500, possibly via an intermediary stablecoin such as USDC. At the end of the swapping process, you'll have a new token with the same market value as the one you swapped.

Where can I swap my Solana tokens

Token swaps on Solana take place on decentralized exchanged (DEX) that act as automatic market makers (AMMs) between you and others who wish to swap their tokens too. Popular DEX include Raydium, Dexlab and Mango Markets.

Many DEX on Solana are using code provided by Project Serum, which makes use of Solana's lightning fast transactions to provide instantaneous exchanges with low fees.

How do token swaps work?

Token swaps work by allowing you to exchange any supported token in your wallet with another token offered by the exchange. Normally swaps are listed in pairs, for example SOL-RAY, SOL-USDC and SUSHI-USDC.

If you wish to exchange your SOL for RAY you can make the exchange with a simple click, and with all fees displayed transparently. However in the example above to exchange SOL for SUSHI you may need to make two exchanges, once to convert to USDC, and then again to convert your USDC to PRT. Thankfully most DEX will manage this conversion seamlessly, and transparently display

What's the difference between swapping and trading?

In practice there is little difference between a swap and a trade on Solana's Defi platform, but the user experiences are designed for different audiences. Solana's trading platforms are designed with charts, indicators and tools to allow traders to perfectly time their entry and exit from the markets. Each trade is effectively a 'swap' between a pair of tokens at a fixed price - the key difference is a trader may set a limit order to wait for the perfect price - and then plan to sell when they reach their target.

On the flip side, swaps tend to be used by people who simply want to move funds from their wallet on platform A to platform B, and the Swap interfaces of most DEXs are designed to streamline this. Most user interfaces for swapping are minimal, making it clear the price you will pay for your trade but removing any other complexity.

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