How to get started with Crypto Swapping? And what exactly is a Crypto Swap?

| November 17, 2023

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Crypto Swapping

In crypto markets, thousands of crypto projects and associated tokens are designed to serve different purposes. But, to switch from one crypto holding to another, you have to sell your existing tokens for fiat and then buy another token using fiat. The entire swapping process from crypto-to-fiat and fiat-to-crypto could be more efficient and affordable. This is what crypto swap solves. The swap exchange crypto platform makes swapping faster and easy for everyone.

Key Takeaways

  • Crypto swaps let you trade one cryptocurrency for another without involving crypto-to-fiat exchange.

What is cryptocurrency swapping?

Cryptocurrency swapping refers to exchanging one digital asset for another on a decentralized exchange platform. It involves swapping one cryptocurrency for another without needing an intermediary, such as a bank or financial institution. This process is facilitated by smart contracts, which are self-executing contracts that automatically execute the agreement terms between the parties involved.

There are several reasons why people engage in cryptocurrency swapping. One of the main reasons is to diversify their investment portfolio. By swapping their cryptocurrency holdings, investors can mitigate their risk exposure and potentially increase their returns. Another reason is to take advantage of market opportunities, such as trading one cryptocurrency for another that is expected to increase in value.

Cryptocurrency swapping can also be used to convert one cryptocurrency into another for practical purposes. For example, if a merchant only accepts a specific type of cryptocurrency as payment, a person can easily convert their cryptocurrency holdings into the required currency using a swapping platform.

Overall, cryptocurrency swapping provides a fast and convenient way for investors to exchange digital assets without relying on traditional financial institutions. However, it is important to note that cryptocurrency swapping is not without risks, and investors should always do their research and exercise caution before making any trades.

Swap Crypto Assets on a Decentralized Exchange.

A decentralized exchange is also referred to as DEX. DEXes are designed to operate without a central governing authority. Rather than relying on a centralized entity, crypto swap platforms such as DEXes instead rely on self-executing smart contracts for regulation and operations. The DEX infrastructure is peer-to-peer. It allows crypto asset holders to directly exchange cryptocurrencies without involving any intermediary such as a financial institution or government. Out of thousands of DApps, cryptocurrency swap DEXes can be identified by their unique names, which usually include the word “swap”. Some of the well-known examples of crypto swap DEXes include Uniswap, PancakeSwap, and SushiSwap.

Most DEX lets you swap crypto directly from your favorite self-custody wallet. Plus, DEXes such as Uniswap make it easy for you to maintain full control over your digital assets.

Upsides of DEX

  • With crypto swap DEXes, your personal information stays private. You get improved anonymity while transacting via DEXes.
  • With DEX cryptocurrency swap, you don’t have to trust or involve third-party or external entities. This helps improve the overall security of the transaction, and the underlying blockchain infrastructure makes the transaction tamper-proof.
  • Most DEX crypto swap platforms don’t hold your private keys. Additionally, no third party gets access to your private keys.
  • DEX swap exchange crypto platforms support a wide range of protocols, enabling you to exchange virtually any kind of token.

Downside of DEX

  • To use a swap exchange crypto platform, you are required to have some technical know-how or else familiarity with the crypto space in general.
  • The DEX crypto swap platforms are relatively less user-friendly.
  • When trying to swap crypto tokens of smaller projects and protocols, you are likely to face liquidity issues. Liquidity issues often limit the total transaction size.

Swap Crypto on a Centralized Exchange

CEXes, including platforms like Coinbase and Kraken, are centralized exchanges that are owned and operated by a central organization. These platforms facilitate transactions between users, offering crypto-swapping services that are differentiated by the variety of trading pairs available and the transaction fees charged. Since most users begin their crypto journey with centralized exchanges, these platforms are designed to be user-friendly. However, it is important to note that as a part of the custody service, any cryptocurrency received in the swap will remain under the control of the exchange.

The crypto wallets offered by centralized exchange let you swap crypto without making you navigate complex dashboards. With custodial wallet such as Coinbase wallet, you can easily swap a wide range of popular crypto assets.

Upsides of CEX

  • CEX platforms that let you conduct cryptocurrency swaps are built to support larger trade volumes and offer high liquidity
  • Using the CEX swap exchange crypto platform is relatively easy. It is designed to provide a convenient user experience.
  • To use CEX, you don’t need to have in-depth technical knowledge.

Downsides of CEX

  • You don’t have complete control over your keys with the CEX crypto swap platform. Additionally, you’ve got to share your private keys with a third party.
  • When you swap crypto, the CEX platform determines which trading pairs to make available.

Reasons to use Swap Exchange Crypto:

Now that you comprehend the concept of swapping cryptocurrencies, you may wonder why anyone would desire to do so. What motivates individuals to exchange their existing crypto assets for a different type? Let us explore some of the reasons behind it.

Earning profits

Certainly, generating income is a desirable pursuit that appeals to most individuals. Trading cryptocurrencies like Ethereum, Bitcoin, or Stablecoins can be a lucrative opportunity, given their volatility in price. With proper market timing and a dash of fortune, exchanging your crypto at opportune moments could result in substantial profits.

Portfolio diversification

While some people may not appreciate the swift fluctuations in cryptocurrency prices, diversification is often viewed as a potent tool to mitigate risks. By possessing a small amount of various cryptocurrencies, the effects of price declines can be diminished.

Earn passive income

Are you interested in earning money effortlessly? Some cryptocurrencies support staking, enabling you to acquire more crypto without any additional effort on your part.

Beware of Loss

Engaging in cryptocurrency trading is inherently risky, and this goes beyond security concerns. As previously mentioned, there is a potential for significant profits if you time the market correctly. However, mistakes in judgment could result in significant losses. To minimize the risk, it is advisable to follow some basic rules, such as investing or trading only what you can afford to lose and conducting thorough research beforehand.

Furthermore, swapping cryptocurrencies typically incurs a fee, which may result in a slightly lower return value.

Conclusion

Using a cryptocurrency swapping platform, you can virtually exchange any type of cryptocurrency for any other. You can opt for either CEX or DEX-based crypto-swapping platform. Both are designed to facilitate swapping within trading pairs efficiently.

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More on Crypto

As we continue constructing a fully regulated digital asset custody platform, ensuring secure storage for both crypto and fiat assets remains a critical priority. 

To facilitate the last checkpoint of enabling institutions to convert their digital asset treasury into fiat currency, we’re expanding beyond pure wallet infrastructure and integrating seamless fiat off-ramp capabilities for our partners.

We’re thrilled to announce our partnership with Encryptus, licensed and compliant off-ramp solutions tailored for institutional clients. This collaboration elevates Liminal’s service offerings by empowering our partners to convert their digital asset treasuries into fiat currencies efficiently.

Integrating A Seamless Off-Ramp Solution

The digital asset ecosystem historically faced friction points when transitioning between fiat and cryptocurrencies. Off-ramp solutions address this pain point by enabling efficient and streamlined conversion between asset classes, minimising value loss and simplifying compliance processes.

Here’s how off-ramp changes the game:

  • Reduced Friction: Frictionless conversion minimises delays and operational complexities associated with traditional fiat-crypto exchange methods.
  • Enhanced Efficiency: Streamlined workflows expedite asset conversion, increasing speed and cost-effectiveness for institutional and individual users.
  • Optimised Value Preservation: Advanced off-ramp solutions prioritise minimising price slippage and value loss during conversion, protecting user portfolios.
  • Simplified Compliance: Integrated compliance features navigate regulatory complexities, ensuring adherence to relevant financial regulations.

With our partnership with Encryptus, we have embedded their institutional-grade APIs, connecting their off-ramp solution within Liminal’s wallet and custody platform. 

This integration simplifies our clients’ liquidation requirements while keeping their assets secure and more:

  • Effortless Digital Asset to Fiat Conversion: Our partners will be able to access treasury management and facilitate business payments in 54 countries and individual payments in an extensive network of 80+ countries.
  • Streamlined Compliance and Regulation: Our partners will be able to leverage Encryptus’s rigorous licensing and compliance framework, ensuring adherence to stringent financial regulations.
  • Enhanced Platform Value: We will be able to expand the functionality of the Liminal custody solution, attracting institutional users seeking comprehensive digital asset management capabilities.

Moving Towards A Robust Off-Ramp Partnership With Encryptus

The partnership between Liminal and Encryptus earmarks a significant step forward in secure digital asset custody, representing a shared commitment to pushing compliant practices while supplying institutions with easy access to convert their digital assets to fiat. 

For Encryptus, the opportunity to integrate with Liminal’s established platform presents a chance to reach a wider audience and scale their innovative off-ramp solutions to new heights. By streamlining fiat conversion within Liminal’s secure custody infrastructure, Encryptus gains access to a trusted network of institutional users seeking seamless and compliant treasury management.

For Liminal, this collaboration reinforces our dedication to partnering with companies that demonstrably prioritise clear governance and robust policy frameworks. By aligning with Encryptus’s stringent compliance standards, we reaffirm our commitment to building a secure and sustainable future for digital assets, where trust and regulatory certainty go hand-in-hand.

January 22, 2024

Hello world, it’s that time of the month when we share the biggest security breaches in the world of Web3 through our Security and Regulatory Newsletter. 

Liminal believes in optimizing security and custody practices globally across the Web3 industry. Through our Newsletter, we highlight security, regulations, and compliance incidents that have happened in the past month and how one can follow better Security practices to safeguard their digital assets. 

We will also highlight regulatory changes that might have happened globally, which were significant to the overall ecosystem.

Dive in and get a detailed analysis of everything security and regulation in the domain of web3 with Liminal’s Monthly Security and Regulatory Newsletter.

Web3 Security Compromises in January

Abracadabra exploited for almost $6.5 million, Magic Internet Money stablecoin depegs

The Magic Internet Money ($MIM) stablecoin has lost its dollar peg again, dipping all the way below $0.77 in a flash crash before returning to around $0.95.

The depeg appears to be related to an exploit of the Abracadabra lending protocol, which allows people to borrow $MIM. An attacker exploited an apparent flaw in the platform’s smart contracts to drain around $6.5 million.

Goledo Finance hacked for $1.7 million

Goledo Finance, an Aave-based lending protocol, was exploited through a flash loan attack. The attacker stole assets estimated by CertiK to be around $1.7 million.

Goledo Finance contacted the attacker to offer a 10% “bounty” for the return of the remaining assets. In a message on January 29, the attacker wrote: “I hacked Goledo and want to negotiate.”

Socket service and its Bungee bridge suffer $3.3 million theft

The Socket cross-chain infrastructure protocol was hacked for around $3.3 million in an attack that exploited its Bungee bridge. The thieves were able to exploit a bug that allowed them to take assets from those who had approved a portion of the system called SocketGateway.

A little over 700 victims were affected, and the highest loss from a single wallet was around $657,000. 121 wallets lost assets priced at more than $10,000.

On January 23, the protocol announced they had recovered 1,032 ETH (~$2.23 million) of the stolen funds.

Web3 Regulatory Practices for January

The EU Imposes Stricter Due Diligence Rules for Crypto Firms

On Jan. 17, the European Council and the Parliament came to a provisional agreement on parts of the Anti-Money Laundering Regulation (AMLR) that now extends to the crypto sector.

Under the new rules, cryptocurrency firms will be required to run due diligence on their customers involving a transaction amounting to €1,000 ($1,090) or more. 

However, the agreement isn’t final yet as it has to be first officially adopted by the Council and Parliament before the rules can be applied.

So, after the EU passed its landmark MiCA regulation last year, which clarified rules about cryptocurrencies, regulators are now targeting the space with tighter controls. 

While these regulations bolster security and trust in the crypto market, potentially attracting more cautious investors and combating financial crimes, they also present challenges. 

The US State of Virginia Introduces Digital Assets Mining Rights

Recently, the Virginia State Senate introduced Bill No. 339, which outlines regulations for the transactions and mining of digital assets and their treatment under tax laws. 

The legislation exempts individuals and businesses engaged in crypto mining activities from obtaining money transmitter licenses. Additionally, it protects miners from any discrimination. 

Issuers and sellers of crypto are also exempted from securities registration requirements if certain conditions are met. Moreover, those offering mining or staking services are not to be classified as “financial investment” but must file a notice to qualify for the exemption.

The bill further incentivizes crypto’s use for everyday transactions by offering tax benefits. Under this, up to $200 per transaction can be excluded from an individual’s net capital gains or gains derived from using crypto to purchase goods or services, starting from Jan. 1, 2024.

Key Takeaways:

  • Hackers continue to exploit vulnerabilities in DeFi protocols and cross-chain bridges, highlighting the need for robust security measures.
  • Regulatory frameworks are evolving rapidly, with stricter AML rules and supportive legislation for emerging technologies like crypto mining.
  • Staying informed about these developments is crucial for navigating the digital assets market safely and responsibly.

Stay #LiminalSecure

These events highlight the constant evolution of Web3 security and regulation. You can confidently navigate this dynamic landscape by staying informed and prioritizing security best practices. 

At Liminal, we’re committed to empowering institutions to unlock the full potential of digital assets without compromising security or compliance norms with our robust custody and wallet infrastructure solutions. Join us on this journey towards a safer, more accessible future for digital assets.

January 15, 2024

Buckle up as we’re about to take a trip down memory lane. 

The year 2023 was a wild ride that showed signs of a plummeting market, groundbreaking innovation and regulatory hurdles. 

Contrastingly, in the same year, we saw no market-shattering crashes. Financial institutions extending an olive branch, key jurisdictions unlocking the doors to blockchain technology. 

Simultaneously, at Liminal, we experienced significant breakthroughs, re-engineering our positioning and becoming a pioneer in digital asset security with bank-grade custody. 

We took major strides this year, right from building comprehensive products to becoming a qualified custodian, from revamping our brand design to expanding our offices in newer locations, from partnering with hyper-local communities to onboarding a diverse set of clients,  we did it all. 

So, let us take you through everything we accomplished in 2023 and what the future holds.  

Liminal Became A Qualified Custodian

One of the prominent moves we made this year was to change our positioning as a regulated custodian from being a wallet infrastructure platform. 

We got two licenses in key jurisdictions to operate as a regulated custodian. 

The first one came from Hong Kong, where we acquired the TCSP license issued by the SFC, which oversees and regulates financial activities to ensure compliance with legal and regulatory obligations. 

Our next license came in the MENA region, where we got In-Principle Approval for the FSP license granted by the FSRA, a governing body in ADGM, to establish a progressive financial services environment. 

Both these licenses paved the way for Liminal to push its wallet infrastructure and offer bank-grade custody to institutions looking to operate in these particular regions. 

Liminal Introduced A Suite of Products & Features

Continuing our building spree, we launched new products and integrations to broaden the existing infrastructure and added more parameters of security, scalability and sustainability. 

Staking-as-a-Service

Liminal launched staking for institutions to eliminate the risks involved in running staking nodes and the vulnerabilities in hot wallet transfer. 

Hence, we introduced an industry-first mechanism of cold wallet staking to ease staking for institutions and secure assets explicitly.  

Whitelabel Solution

Accelerating the go-to-market time for organisations looking to build a secure and customisable application, Liminal launched its whitelabel solutions

Targeted to help organisations meet security standards, manage assets with maximum control, and add their custom branding to give it a personal touch. Our whitelabel solution is a first-in-class custodian-developed solution for institutional grade custody.

Smart Consolidation

We are building not just secure custody but also automation-based features to eliminate manual errors, increase the throughput of transactions and scale institutional wallets. 

Taking this ahead, we launched the Smart Consolidation feature to automatically calculate all the active addresses and consolidate them into a single address. With this level of automation, managing multiple addresses becomes uber easy for wallet teams. 

Travel Rule 

To limit the use of cryptocurrencies for activities like money laundering and terror financing by regulatory bodies, travel rule was mandated for institutions to follow. 

Continuing the latest compliance integration policy, Liminal partnered with Notabene to introduce Travel Rule, enabling institutions to manage counter-party risk and extend the process of due diligence right from the Vaults dashboard.   

Liminal Accured List Of Security Certifications

Following our ISO certification for data privacy and risk management, we added two new security certifications to fortify our systems and build trust for our clients. 

Liminal Achieves Crypto’s Highest Security Mark: CCSS Level-3 Certified

Cryptocurrency security lacked a gold standard, creating a vulnerable ecosystem. Enter the CryptoCurrency Security Standard (CCSS), setting the bar for auditing and certifying custodian infrastructure and establishing levels of trust and confidence for investors. 

Liminal became only the second wallet infra platform and the first regulated custodian to be accredited with Level-3 certification, deeming wallets, transfer environments, workflows and engines safe and secure. 

Liminal Reciueved SOC 2 Type II Certification

To tackle threats in institutional-grade security, organisations’ SOC has been identified as the primitive compliance standard for service organisations to handle customer data.

Liminal successfully attained SOC 2 Type II certification, validating its setup of security controls & compliance processes to be industry standard. 

Liminal Level Up

Liminal unveiled its most significant platform upgrade ever, revolutionising the future design standard of a qualified custodian. This level-up activity included revamping our website and product UI, giving a completely new look and feel to not “Liminal” but “Liminal Custody”. 

The Liminal level-up activity was a strategic step and the biggest one for us this year to create an intuitive, inviting and tailored experience for our clients. 

Liminal Reached New Borders

We spread out our operations this year, reaching new borders and onboarding a new wave of institutions across gaming, DeFi, HNI wealth, treasuries, and exchanges! From Indonesia and Africa to India, UAE, and Korea, we are setting up custody operations worldwide. 

This isn’t just a roster of clients; it’s a network ready to spark connections, collaborations, and shared success to further the definition of secure assets. 

Liminal Collaborated With Law Enforcement Agencies

The best and the proudest moment of Liminal for this year was when we collaborated with CBI & Himachal Prashesh police department to aid them in seizing digital assets. 

This partnership put us on the map, as we became the first point of contact for LEAs in India, and we standardised the process of secure seizure of digital assets. Leveraging our expertise, we enabled a safe space for officers to learn the basics of custody, contributing to a safer digital landscape.

Team Liminal Grew Bigger

Building such a massive infrastructure, prioritising security and compliance over everything else, we had to grow the team to build at pace and expand at an even higher level. Not only did we grow in team numbers, but we also elongated our footprint to new destinations. 

Team Liminal went from 32 to 70 with 5 new offices in Mumbai, Ahmedabad, Hong Kong, Singapore and ADGM, setting up our custody operations steadfastly. 

What’s To Look Out For In 2024

We are excited to announce that our commitment to integrating the most secure digital asset wallets with a cutting-edge custody platform is swiftly becoming a reality. 

The upcoming year, 2024, will serve as a testament to this transformative journey. Moving beyond self-custody, we are constructing a comprehensive infrastructure encompassing both custodial and non-custodial wallets. Exciting products are set to launch starting from the first week of January, some of which are: 

  • Official Custody Platform Launch
  • Liminal’s Off-Exchange Settlement Hub
  • Secure Custody of Real-World ‘Tokenised’ Asset

The Web3 space has evolved explicitly this year, pushing the narrative of secure digital asset custody and security, introducing new regulations and compliance standards, licensing VASP providers and standardising the use of custodians as a trusted third party. 

At Liminal, we took major strides this year, from building comprehensive products to becoming a regulated custodian, from revamping our brand design to building the full infrastructure of custodial and non-custodial wallets.

January 5, 2024

Find Out How You Can Benefit From A Fully Self-Custodial Wallet Architecture