Crypto swaps refer to exchanging one digital asset for another on a swap platform.

It involves swapping a cryptocurrency for another without intermediation from a financial institution or a bank. Swaps are facilitated entirely by smart contracts, or self-executing programs that run the contract logic between the involved parties.

One of the primary reasons investors engage in crypto swaps is to diversify their investment portfolio. Others do so to capitalize on speculative increases in value when trading one cryptocurrency for another.

Meanwhile, some swap between cryptocurrencies for practical purposes. For instance, if an online merchant only accepts a particular cryptocurrency as payment, crypto holders can easily swap their holdings into their desired token using a swap platform of their choice.

Want to learn the ins and outs of crypto swaps? Learn the answers to the 7 most commonly-asked questions about crypto swaps.

Are crypto swaps taxable?

According to the United States Internal Revenue Service (IRS), selling crypto for fiat is a taxable event requiring reporting and tax payments.

There are no distinctions separating crypto-to-crypto swaps from this treatment. In fact, the IRS treats crypto swaps exactly the same way as crypto-to-fiat swaps in that they both need to be reported and subjected to existing taxation requirements.

However, the levying of taxes on the crypto swap in particular assumes that the transaction resulted in a capital gain.

The treatment is different if the crypto swap results in a loss. Crypto swaps resulting in losses aren’t immune per se from taxation. Instead, the reason why they do not constitute taxable events is because the swap generated no income and no capital gain for the government to levy taxes on.

Nevertheless, crypto swaps in the US ought to be reported even though no tax payments are required while the situation might be similar or completely different in your home jurisdiction.

Is it better to swap or trade crypto?

Swaps and trades work under similar pretenses; so much so that they are often confused for one another.

Both transactions allow traders to obtain the assets they desire, and both can be performed using a variety of platforms and methods

However, there are some key differences between swapping and trading that you need to keep in mind.

Crypto swaps occur between two parties using decentralized exchange or swap protocols. Crypto trades, meanwhile, are typically facilitated by a centralized crypto exchange.

So, for instance, if you’re swapping Ethereum for Bitcoin on a decentralized aggregator like Houdini Swap, the platform’s conversion engine will show you how many Bitcoin your ETH is worth right now between two of its partner exchanges, automatically choosing the most efficient pathway for you at the highest level of privacy possible.

Trades, on the other hand, give users more options than swaps, allowing them to set the exact price they wish to perform the exchange. Using trading options like market orders and limit orders allow you to make the trade at your desired price. Market orders, for instance, are basically a swap, wherein you make the trade at the current price the market specifies at the time of your transaction.

In essence, trades are more complex than swaps, but offer a wider variety of options while allowing you to buy at your desired price.

Swaps are designed for immediate transactions, while trades can be set to execute in the future or when certain market conditions are met.

Ultimately, swaps and trades complement each other well, and form part of every modern trader’s arsenal depending on the objectives of the transaction they wish to perform.

Why would you swap crypto?

A crypto swap is the process of performing a direct exchange of a particular cryptocurrency for another without the involvement of crypto-to-fiat exchanges or transactions.

Crypto swaps enable users to swap their coins or digital assets directly to save time and money on fees, without having to go through multiple transactions. Crypto swaps are ideal for individuals who wish to diversify their crypto holdings by exchanging one of their tokens for another, minimizing their risk exposure. Crypto swaps can be done on centralized exchanges, decentralized exchanges, DEX aggregators, and swapping platforms, which contribute to the market’s overall efficiency by ensuring that users’ assets remain tradable and exchangeable without hitches.

Are crypto swaps traceable?

Most crypto swaps are traceable. Swaps performed on publicly-accessible and open blockchain networks like Ethereum, for instance, will have a record of their transactions recorded on the blockchain and can be viewed by anyone and potentially linked to centralized exchanges through their transaction histories.

While the blockchain is pseudonymous in nature, anyone could theoretically trace swaps. Blockchains display transactions by showing the amount that has moved between cryptocurrency addresses, which are pseudonymous by default, while solutions have been developed to attribute addresses to their beneficial owners or services.

Blockchain analysis tools can track the movements of cryptocurrency between pseudonymous addresses. Therefore, crypto swaps are traceable depending on the platform they use.

However, privacy swaps offer a layer of crypto swaps that enable true of anonymity on the blockchain.

For instance, Houdini Swap enables private swaps using a dual-exchange setup using a random L1 platform serving as a privacy tunnel to obfuscate links between source and target addresses.

This helps to keep your information private when performing a private swap or a faster semi-private cross-chain swap on the Houdini Swap app.

What does it mean to swap crypto?

Native crypto-to-crypto swaps enable the direct value transfer of one cryptocurrency token for another at the current market rate. This enables a greater degree of efficiency and seamlessness, eschewing the longer process of using centralized crypto exchanges as an onramp with extra fees.

Crypto swaps enhance the underlying liquidity and efficiency of the digital assets they seek to exchange without the threat of overbearing control and censorship on centralized platforms.

With crypto swaps, users can diversify their portfolios and get in on new investment opportunities without having to use fiat as an on-ramp and off-ramp.

Is it better to swap or sell crypto?

In the realm of cryptocurrencies, newbies may regard the terms “swap” and “trade” as the same. However, though the outcome might be similar, the process is different.

In crypto trading, transactions are executed based on an order book, limiting trades to pairs available on the exchange. Typically, trading involves exchanging crypto for fiat currency first and then using that fiat to purchase another coin. This process will entail the trader paying a commission at every step: first, selling a cryptocurrency and second, buying another coin.

Swapping, on the other hand, allows for seamless exchange between cryptocurrencies. The process occurs in one go, eliminating the need to convert crypto to fiat initially and, after that, buying another cryptocurrency. Swapping offers greater flexibility, enabling users to immediately exchange one asset for another.

What is slippage in crypto swaps?

Slippage refers to the difference between the expected price of a cryptocurrency and the actual price your trade is executed at. It’s the difference between your desired price and the real world value of your swap.

Another way to view slippage is that it is the amount lost or gained due to market fluctuations at the time of performing a swap. Since prices can swing wildly by the second, changes in prices could have already occurred. Likewise, if there is a lack of liquidity—or buyers and sellers at your desired price—you might end up paying over the odds to complete your trade. Slippage, while frustrating due to their propensity to eat into a trader’s profits, remains a normal part of trading.

Houdini Swap: New Era of Crypto Swaps

Houdini Swap changes the game when it comes to crypto swaps by enabling fast, semi-private cross-chain crypto swaps with a level of privacy never before seen in the industry.

It is a crypto swap protocol that acts as a liquidity aggregator between its exchange partners. Houdini automatically determines the most efficient transaction and lowest possible price while adding a privacy layer that helps to keep your information secure.

Here’s why you should use Houdini Swap:

No direct fees. Houdini Swap doesn’t charge users for network gas fees and spreads; instead, these fees are shouldered by Houdini Swap’s partners.
Transparent quotes. Houdini Swap provides users all-inclusive fees
All-Inclusive quotes. Houdini Swap quotes all-inclusive fees, covering all exchange fees, gas fees, and spreads.

Institutional-grade security. Using Houdini Swap’s private swap or its fast cross-chain swap gives your transactions an added layer of transactional privacy, enabling you to perform secure and fully compliant swaps on-chain.
Support for over 60 cryptocurrencies. Houdini Swap broadens the access of fast, semi-private cross-chain swaps to over 60 cryptocurrencies and counting, expanding its utility to new audiences.