As a crypto mum, I recently stumbled upon a surprising discovery that left me amazed and, frankly, a bit shocked. I’m talking about the eye-watering costs associated with swapping coins that aren’t directly available for sale. Let me share what I’ve learned, in hopes that it might help others who are navigating the complex world of cryptocurrencies.
I started this blog to break down difficult concepts in crypto and tech marketing, making them more understandable for everyone. Today’s topic is one that caught me off guard, and I’m writing this article because I didn’t know about it myself until recently. The sheer expense of swapping certain coins is truly astonishing, and I feel it’s crucial to shed light on this often-overlooked aspect of crypto trading.
The Hidden Costs of Crypto Swapping
When I first got into cryptocurrencies, I thought swapping one coin for another would be as simple as exchanging dollars for euros at the airport. Oh, how wrong I was! The reality is far more complicated and expensive, especially when dealing with less common coins.
Why is it so expensive?
- Network Congestion: Imagine trying to drive through rush hour traffic. That’s what happens on the blockchain when too many people are trying to make transactions at once. This congestion leads to higher “gas fees,” which are like tolls you pay to get your transaction processed.
- Liquidity Issues: Some coins are like rare collectibles – not many people are buying or selling them. This lack of liquidity means you might have to pay a premium to find someone willing to trade.
- Multiple Steps: Often, swapping less common coins involves multiple transactions. It’s like having to exchange your dollars for euros, then euros for yen, before finally getting the currency you want. Each step comes with its own fees.
- Exchange Fees: Whether you’re using a centralized or decentralized exchange, they all need to make money somehow. These platforms charge fees for facilitating the swap, which can add up quickly.
The Shocking Reality
I was floored when I realized that swapping coins could cost up to 8% or even 13.6% of the transaction value. That’s a significant chunk of your investment gone in fees!
For example, if you wanted to swap $10,000 worth of one coin for another, you might end up with only $8,640 worth of the new coin. That’s $1,360 lost in the process!
What Can We Do?
While there’s no magic solution to eliminate these costs entirely, here are a few tips I’ve picked up:
- Do Your Research: Always check the fees before making a swap. Some platforms are more expensive than others.
- Consider Timing: Try to make swaps when the network is less congested. This can help reduce gas fees.
- Use Reputable Platforms: Stick to well-known exchanges or swap services to avoid additional risks.
- Break Up Large Transactions: Sometimes, making several smaller swaps can be cheaper than one large one.
Understanding the Maker-Taker Fee Model
To help you navigate the world of crypto swapping more effectively, let’s dive into a concept that’s crucial for understanding how fees work: the maker-taker fee model.
What is the Maker-Taker Fee Model?
The maker-taker fee model is a pricing structure used by many cryptocurrency exchanges to encourage liquidity in the market. Here’s how it works:
- Makers: These are traders who add liquidity to the market by placing limit orders that aren’t immediately matched. They’re called “makers” because they’re making the market by creating new orders. Makers typically enjoy lower fees because they’re providing a valuable service to the exchange by increasing liquidity.
- Takers: These are traders who remove liquidity from the market by matching existing orders. They’re called “takers” because they’re taking liquidity that’s already available. Takers usually pay higher fees because they’re benefiting from the liquidity that makers have provided.
Why is this important for crypto swapping?
Understanding the maker-taker model can help you potentially reduce your swapping costs:
- Be a Maker: If you’re not in a rush to complete your swap, consider placing limit orders instead of market orders. This way, you might qualify for lower “maker” fees.
- Volume Discounts: Many exchanges offer lower fees to traders with higher monthly volumes. If you’re a frequent trader, consolidating your trades on one platform might lead to significant savings.
- Platform Tokens: Some exchanges offer discounts when you use their native tokens to pay fees. For example, using Binance Coin (BNB) on Binance or KuCoin Shares (KCS) on KuCoin can reduce your trading fees.
By understanding and leveraging the maker-taker model, you can potentially reduce the costs associated with crypto swapping, especially when dealing with less common coins.
Final Thoughts
As a crypto mum, I’m still learning every day about this fascinating world of digital currencies. The high cost of swapping less common coins was a real eye-opener for me. While it’s frustrating, understanding why these costs exist helps me make more informed decisions.
Remember, in the world of crypto, knowledge is power (and savings)! Always do your homework before making any transactions, and don’t be afraid to ask questions. We’re all learning together in this exciting, if sometimes expensive, crypto journey.
Sources
Why does it cost so much to swap coins? : r/ExodusWallet – Reddit
Crypto Swaps vs Exchanges: Pros and Cons for Trading … – Rejolut
How Much Are Cryptocurrency Exchange Fees? – Investopedia
All you need to know about the exorbitant swap fee on MetaMask – Coinmarketcap
Crypto-to-crypto swaps, explained – Cointelegraph
What is the real cost to swap coins? : r/Crypto_com – Reddit
What Is Cryptocurrency Swapping and How To Swap Crypto? kriptomat