Expand the possibilities of your assets with swaps to generate income from your assets. Instead of storing assets in just one ledger, you can use them in other networks to earn additional incomes.
Besides the Bitcoin network, countless others exist. For example, Bitcoin's digital ledger offers limited opportunities to grow your incomes, because it was created to store value long term. Comparable to a bank safe in which gold bars are stored. You would not receive any interest on the gold. In contrast, a Bitcoin on the Ethereum network or the Binance Smart Chain network can earn additional profits.
Atomic swaps are a tool to move your assets into other networks. They work like a bridge. This gives your assets new functions. You use them for staking, liquidity mining, lending, and more.
By bridging ledgers, the borders between networks become permeable and they can be constantly extended with new capabilities. You can trade tokens from one network to another across the boundaries of a network. This creates a mesh between the existing blockchains.
As a result, the several blockchains hedge against each other in value. When values from the Bitcoin ledger are traded on the Ethereum ledger, Ethereum benefits from the high value stability of the Bitcoin network. The more already established tokens are traded on another ledger, the tighter the mesh becomes and the more stable the network itself becomes.
Let's say you have your main assets in Bitcoin and you want to use smart contracts to get returns on a portion of your Bitcoin assets. To do this, you use a bridge that swaps from one network to another. Since each network uses its own native currency (Bitcoin ledger: BTC, Ethereum ledger: ETH, Binance chain: BNB) the assets must be converted first. This is done via a token on the other network. So you exchange your Bitcoin for a token that has the value of one Bitcoin.
The value of your assets in Bitcoin is from this point on secured by the native currency of the new network. If you move a Bitcoin into the Ethereum network, you will receive a new token, e.g. "WBTC" (wrapped BTC), which has the same price as a Bitcoin in the Bitcoin ledger, but additionally gets new functions that apply in the Ethereum network. The transfer of Bitcoin works the same way in the other direction. After your Bitcoin (WBTC) has earned returns for you, you take the assets back to the Bitcoin network.
If you want to learn more about the functionality of this process, see the article on synthetic assets.
Each individual network has its own native currency. The Bitcoin network namely the currency BTC, Ethereum the currency ETH. The native currency is used to pay for all transactions. When you move assets between individual accounts on the same network.
Your assets and those of all other participants are in the distributed ledger all the time. You simply confirm that you are authorized to move them. This makes you the owner of those assets from your perspective.
Ledgers used for decentralized finance, such as Ethereum, have other assets stored and tradable alongside their native currency, the aforementioned tokens. From the outer perspective, they may appear as own currencies. However, they are still in a specific ledger with a specific native currency. This means that every token on the Ethereum ledger is backed by Ether.
Tokens extend the abilities of a network beside the simple purchase of a native currency. Tokens make decentralized finance possible in the first place. They form their own currencies in the network, but are still dependent on and backed by the native currency.
A prominent example are so-called stablecoins such as Dollar tokens. Stablecoins represent the value of a state's national currency e.g. 1 USDC = 1$. In order for this value to be guaranteed, the token must have collateral deposited. This can be an actual Dollar from the real economy possess. Or an equivalent value in Ethereum of at least the same amount. This creates a Dollar token in the ledger with the same value of $1. You can trade it on exchanges against "real" dollars.
If you trade with tokens and native currencies in the ledger, you save costs and you will get completely new opportunities. Because with these fiat currency tokens, you can stay in the ledger until profits are actually paid out to your traditional bank account. Because otherwise you would have to keep paying out in your local currency to your bank account after every exchange into fiat. This is slow and costs you a lot of transaction fees. The fees in a ledger are usually much lower and transactions much faster.
Tokens can serve a wide variety of functions. Stablecoins are one possibility. Mostly, however, tokens are often used to form their very own networks in the network.
Unfortunately, the individual tokens are so individual that we cannot list them all here and how exactly they work. We will deal with them separately at the decisive points.