What Is Location Swap?

When digital assets on blockchain have a physical backing, we call them asset-backed tokens. These tokens are just a claim to the real physical good, whose properties are described in the tokens. These can be things like the qualities and dimensions of a commodity, as well as its current storage location. If two such assets are exactly the same in every aspect except their current storage location, then swapping one token with the other means that the holder simply changed the physical location from which they can redeem the asset. This is called a location swap. 

The physical goods (the "asset-backing") are not affected by the swap; they stay where they are. Only the claim to these assets manifested in the form of a token changes hands. A location swap makes sense in a global economy where it can cut transportation costs and avoid product shortages by better utilizing goods that are already at the target location, but not needed immediately by their current owner. 

The Suez Canal blockage of 2021 saw global trade taking a hit of up to $6bn to $10bn, and highlighted the tight scheduling, interconnectedness, and international reliance on global supply chains. In a token economy, a location swap of goods that are already in a warehouse, but not needed in the short term, can be easily done with the goods in transit at a premium. If the premium is lower than the risk of running out of goods, for example, raw materials in a production line, then both parties of the location swap will profit.

Author:

Johannes Schweifer is the CEO of CoreLedger, a company empowering businesses of all sizes to access the benefits of blockchain technology. Schweifer co-founded several blockchain start-ups, including Bitcoin Suisse. He’s a passionate problem-solver, holding a master’s degree in Chemistry and a PhD in distributed computing and quantum chemistry.