Explained: Chain Swaps

A chain swap is a process that moves cryptocurrencies from one blockchain to another.

This process allows traders to obtain access to the various blockchains that support the cryptocurrency that they are holding, thereby enabling the use of their digital assets on these other supporting blockchains.

For example, as Tether (USDt) is on the Omni, Ethereum, Tron, EOSIO and Liquid blockchains, our clients can obtain access to any of these five blockchains with their USDt holdings. A trader can “swap” the current blockchain that their USDt is operating on to another supporting blockchain, for example Ethereum to Omni.

 

How does a chain swap work?

For the majority of our clients who wish to swap small amounts of USDt, they can do so on any exchange that supports USDt on the two blockchains they wish to swap between. A valid account on the other exchange is required.

Let’s say a client on Bitfinex wants to perform a chain swap from the Tron blockchain to the Liquid blockchain. He or she would first deposit their USDt on Tron, within the exchange. The client then simply requests a withdrawal of USDt to the destination blockchain, Liquid. As Bitfinex supports both blockchains, this can be completed on the platform within the exchange.

There might be instances when another cryptocurrency exchange approaches us with a chain swap request, as the exchange might have a surplus of funds on one blockchain but a deficit on another blockchain. The exchange will contact us to confirm the initial and destination blockchains that the swapped funds will be moved between. 

After confirming receipt of these funds in our treasury wallet on the initial blockchain, the same amount of funds will be sent on the destination blockchain back to the other exchange. The entire process of the chain swap is coordinated and managed with the other exchange until completion.

 

Why do token burns sometimes happen after a chain swap?

When our clients make a request to chain swap funds that exceed the amount of USDt held in our treasury wallets on the destination blockchain, we have to mint USDt and transfer these tokens to the destination blockchain. After this transfer is completed, we either burn the same amount of USDt tokens on the initial blockchain or retain these tokens in our treasury wallet on the initial blockchain to be used for future chain swaps with our clients.