Summarized, Uniswap is a decentralized exchange built upon the Ethereum Network. Uniswap enables their users to execute decentralized token swaps of ERC-20 tokens through smart contracts.
Users can interact with the exchange through multiple wallets such as MetaMask, WalletConnect, Coinbase Wallet, Fortmatic or Portis. Because Uniswap is decentralized, users can interact with the exchange without needing to trust anyone with their funds. The funds will always remain in the user’s wallet.
Uniswap also rewards users that provide liquidity on trading pairs.
Decentralized Exchanges (DEXs) have seen enormous growth this past year. The interest in DEXs grew because of liquidity rewards/availability, no KYC, and no need to trust middlemen to be able to trade on the exchange.
Examples of decentralized exchanges are Uniswap, Curve Finance, Compound, 0x Protocol, Cyber Network and plenty more to name. Currently, Uniswap is by far the biggest decentralized exchange.
Uniswap can be very easy to use for people that simply want to buy/sell ERC-20 tokens. For traders however, Uniswap offers various ‘advanced’ trading options that enable you to customise your trading slippage and gas fees. On Uniswap trades work via the liquidity pools. There are no order books as seen on centralized exchanges, and anyone can list their ERC-20 token on the exchange, provide liquidity and start trading. That said, it is extremely important for users to do their own research before interacting with any token.
Because there are no order books, pricing of ERC-20 tokens happens based on a decentralized pricing mechanism that takes into account the liquidity depth. Traders essentially trade agains automated market makers (AMMs) that hold the liquidity reserves funded by liquidity providers.
Anyone can provide liquidity, this needs to be done 50/50 to keep the pool in balance. E.g. if $2,000 in ETH were to be provided in liquidity, this user would also need to provide $2,000 in USDT. Trading pairs can be ERC-20 tokens vs stable coins, stable coins vs stable coins or basically any ERC-20 token against any other ERC-20 token.
When providing liquidity to Uniswap, a user gets UNI-V2 liquidity tokens in return. Which essentially reflect the total % of the liquidity pool you hold and therefore the % of trading fees you will earn from the total trading fee pool (0.3% of each trade).
For traders / users, Uniswap works fairly simple. For example, I want to purchase $2,000 USDT worth of ETH on Uniswap. I find the trading pair on https://info.uniswap.org/ or directly on app.uniswap.org, I fill out the number of USDT I want to swap to ETH and the number of ETH I’ll receive is automatically calculated.
I enter the amount and then hit ‘Swap’. A smart contract transaction will pop up, which I then approve and the swap will be executed through a smart contract.
After this, I will automatically receive the ETH I just purchased in my ERC-20 wallet. In this case, I use the MetaMask extension in my browser. That’s all there is to it!
Uniswap also recently introduced their own token ‘UNI’. 60% of all UNI was distributed to early Uniswap users and liquidity providers when introduced by the team. This has covered many user’s their trading fees and many users have seen significant profits thanks to this. However, UNI wasn’t just airdropped, UNI has a strong use-case within the (future of the) platform.
The introduction of UNI can be read here: https://uniswap.org/blog/uni/.
As mentioned Uniswap has a trustless and highly decentralized financial infrastructure. The UNI token allows for shared community ownership and a dedicated governance system which will guide the protocol towards the future.
The token treasury will be fully managed by the community opening up all kinds of possibilities. It’s hoped this will result in continuous growth of and benefits for the Uniswap community.
UNI holders will have the immediate ownership of: Uniswap governance, UNI community treasury, the protocol fee switch, uniswap.eth ENS-domain, Uniswap default list, and SOCKS liquidity tokens.
1% of UNI total supply (delegated) is required to submit a governance proposal, 4% of UNI is required to vote ‘yes’ to reach quorum, there is a 7 day voting period and 2 day time lock delay on execution.
Governance can be fully discussed on the Governance Forum.
It is anticipated by the community the UNI token will have more use-cases after the Uniswap V3 launch.
As you can see, I am very active on the Uniswap governance forum. This is because I strongly believe in the future of decentralized exchanges and especially Uniswap.
Decentralized options are necessary and need to be encouraged. Uniswap is easy to use and so I could see the platform be very beneficial to attract new people to purchasing cryptocurrency.
Benefits in my opinion are:
Downsides in my opinion are:
Trading and investing in cryptocurrencies (also called digital or virtual currencies, altcoins) involves a substantial risk of loss and is not suitable for every investor. You are solely responsible for the risk and financial resources you use to trade crypto. The content on this website is primarily for informational purposes and does not constitute financial advice.