Uniswap (UNI) has reached the top of one of the most popular trading protocols on Ethereum. With a market cap of over $4,000,000,000 USD, Uniswap has become a unicorn on its way to becoming one of the most useful protocols on the Ethereum network. But is this cryptocurrency’s supreme utility going to last? Could UNI continue to lead the charge or will other exchanges make the protocol obsolete? In this article, we’ll answer these questions by explaining what Uniswap is, how it works, and how it differs from other popular Ethereum tokens. It took us countless hours of dedicated research to write this piece. Thus, we can guarantee that this guide explains everything you need to know about Uniswap.
In This Guide:
What Is Uniswap (UNI)?
Uniswap is a decentralized protocol that enables users to trade Ethereum tokens. The protocol is powered by the Ethereum blockchain and allows anyone to create a market for any ERC20 token. Uniswap was launched in November 2018 and has become one of the most popular protocols on the Ethereum network.
Uniswap is often described as the leading DEX on the Ethereum blockchain. A DEX is a decentralized exchange that does not rely on a third party to hold the user’s funds. Instead, the users themselves are responsible for their own funds. This is done by using smart contracts that are stored on the blockchain.
The main advantage of a DEX is that it is much more secure than a centralized exchange. This is because there is no central point of failure that can be hacked.
Additionally, DEXes are much more censorship-resistant than centralized exchanges. This is because there is no central authority that can decide to delist a token. For example, a centralized exchange can decide to delist a token if it does not agree with the project’s philosophy or if the token does not meet the exchange’s listing requirements. However, a DEX cannot do this because it is decentralized.
The protocol’s popularity can be attributed to its ease of use and utility. Uniswap does not require users to have an account or go through Know-Your-Customer (KYC) verification. Moreover, the protocol does not charge any fees for trades. Rather, it collects a 0.3% fee from each trade that goes towards rewarding liquidity providers. Liquidity providers are users who add capital to the Uniswap pool and earn a portion of the fees collected by the protocol.
In simple terms, Uniswap is a decentralized exchange that allows users to trade Ethereum tokens without the need for an account or fees. The protocol is powered by the Ethereum blockchain and enables anyone to create a market for any ERC20 token. This benefits both users and developers as it makes it easy to trade any token on the Ethereum network.
For example, let’s say you want to trade two ERC20 tokens, Token A and Token B. Uniswap would allow you to do so without the need for an account or fees.
In addition, the protocol also enables developers to create markets for their tokens without the need to list them on an exchange. Many newly launched tokens use Uniswap as their primary method of trading. This is because the process of listing on exchanges can be both time-consuming and expensive. Thus, Uniswap provides a much-needed service to the Ethereum ecosystem.
The UNI token is used for voting on governance proposals and to provide liquidity to the Uniswap protocol. Some decisions that UNI token holders can decide on are whether to add new features to the protocol or to change the fee structure.
The token was launched via an airdrop in September 2020 and has a total supply of 1,000,000,000 UNI. Once the 1 billion tokens are distributed, UNI will become inflationary at a fixed 2%. This is important to note because inflation will go towards rewarding liquidity providers. In other words, UNI holders who provide liquidity to the protocol will earn a portion of the newly minted UNI. New rewards are needed because the protocol currently relies on trading fees to reward liquidity providers.
To summarize, the UNI token is an important part of the Uniswap ecosystem as it is the incentivizing factor for users to provide liquidity to the protocol. Moreover, UNI holders play a crucial role in governance as they are the ones who decide on the future of the protocol.
How Does Uniswap Work?
Uniswap works by using a smart contract that is deployed on the Ethereum blockchain. The smart contract allows users to trade ERC20 tokens without the need for an exchange. When a user wants to trade one token for another, they simply send their chosen tokens to the Uniswap smart contract. The smart contract then calculates the amount of the second token that the user will receive based on the current market price.
The key feature of Uniswap is its decentralized nature. Unlike traditional exchanges, Uniswap does not have a centralized order book. Rather, it relies on liquidity pools to determine prices and execute trades. A liquidity pool is a pool of capital that is used to provide liquidity to a market.
Uniswap uses something called an automated market maker (AMM) to determine prices and execute trades. An AMM is a type of algorithm that automatically sets prices based on the supply and demand of a market. The key advantage of an AMM is that it does not require a centralized order book. This makes it much more resistant to manipulation.
The Uniswap protocol also has a built-in incentive for users to provide liquidity. Uniswap has a 0.3% fee for cryptocurrency swaps. A liquidity provider is a user who provides capital to a liquidity pool. In return for their contribution, they earn a portion of the fees collected by the protocol.
Liquidity providers are essential because they contribute to the pool by depositing their cryptocurrencies into it. This is important because, without liquidity providers, the Uniswap protocol would not be able to function. There would not be enough capital in the pools to enable trades.
To provide liquidity to a pool, a user must deposit an equal value of both tokens into the pool. For example, if a user wants to provide liquidity to the ETH/DAI pool, they must deposit 1 ETH and 1 DAI into the pool. The user will then earn a portion of the fees collected by the pool.
Liquidity providers will receive Uniswap (LP) tokens with each liquidity-providing transaction. These tokens are used to help track the duration and amount of liquidity provided to the protocol. This ensures that liquidity providers receive the proper share of the fees they are entitled to.
This system is automated by the use of smart contracts. The main advantage of this system is that it eliminates the need for a centralized exchange. This makes Uniswap much more resistant to manipulation and attack. Uniswap only works with ERC20 tokens. This is because the protocol is based on the Ethereum blockchain.
The UNI token also helps to decentralize the governance of the Uniswap protocol. As mentioned earlier, the protocol works because the UNI token gives holders voting rights on proposals that can change the protocol. However, the UNI token is not required to use the Uniswap protocol.
Uniswap Fun Facts
- 300+ dApp integrations
- $1.1T+ trade volume through Uniswap
- 315,024 total addresses of UNI holders
- There’s a circulating supply of 734,135,451 UNI coins according to CoinMarketCap
(Data as of 7/12/2022)
The Story of Uniswap (UNI)
Uniswap was created by an Ethereum developer named Hayden Adams. Originally known as Unipeg, the DEX was inspired by Ethereum’s creator’s (Vitalik Buterin) blog posts. After researching the Ethereum blockchain, it was realized that there was a need for a decentralized exchange. This reason was that as more dApps began to launch on the Ethereum network, there was a need for a way to easily trade the different cryptocurrencies.
Shortly after the creation of Uniswap, it became a DAO (Decentralized Autonomous Organization). This means that it is governed by a group of people rather than a single entity. The UNI token was created in September of 2020. This token is used to help decentralize the governance of the Uniswap protocol.
The first version of Uniswap was launched on the Ethereum mainnet in November of 2018. The protocol was created as a way to facilitate the trading of ERC20 tokens.
Uniswap has since gone through two more upgrades. Uniswap V2 introduced helpful features like ERC-20 pairs (previously only ETH was supported), flash swaps (instantaneous trades), and price oracles (to help stabilize pricing).
The most recent version, Uniswap V3, was launched in May of 2021. This new version introduces numerous improvements. Users will notice a better infrastructure, experience more precise execution of trades, and liquid providers can have received better efficiencies.
Overall, the story of Uniswap has been one of success. Although they may not be the newest and flashiest project in the space, they have consistently provided a much-needed service. It will be interesting to see how they continue to evolve in the future. Exchanging crypto assets will always be a complex endeavor, but Uniswap has shown that it is up for the challenge. It provides a much-needed service and UNI tokens are the reward for those who help power the protocol.