For many years, centralised exchanges have been at the heart of the cryptocurrency industry. They provide high trading volumes as well as good liquidity. However, a parallel world is emerging in the form of trustless protocols. Decentralized exchanges (DEX) do not require middlemen or custodians to conduct trading.
Due to the inherent limitations of blockchain technology, it has been difficult to create DEXes that compete meaningfully with their centralised counterparts.
Uniswap is an innovative Ethereum-based exchange protocol. It enables anyone with an Ethereum wallet to exchange tokens without requiring the involvement of a third party. Let’s take a closer look at this Uniswap Exchange review.
What is Uniswap?
Uniswap is a leading cryptocurrency asset exchange that operates on the Ethereum blockchain. It is distinct from traditional exchanges in that it proposes a fully disintermediated, decentralized ecosystem in which no single entity is permitted to own, control, or operate its network. Furthermore, Uniswap employs a relatively new trading model known as an automated liquidity protocol, which eliminates the need for trusted intermediaries and prioritizes decentralisation and security.
Since its inception in 2018, Uniswap has grown to become the most popular and widely used Decentralized Exchange (DEX), with over $5 billion invested in its smart contracts.
Because it is based on Ethereum, Uniswap is fully compatible with all ERC-20 tokens as well as other Ethereum infrastructures such as wallet services like Metamask and MyEtherWallet. Furthermore, the Uniswap platform is completely open-source, which means that anyone, for example, Sushiswap, can essentially copy its codebase and redeploy it to create a similar DeFi protocol. It is straightforward, anonymous, and simple to use. There is no need for you to open an account or complete KYC.
To get started, simply open the website and add it to your wallet. Traditional token swaps require buyers and sellers to create liquidity, whereas Uniswap automatically creates markets and solves the liquidity problem.
How does it work?
Uniswap is a decentralised exchange that operates as an “automated market maker” (AMM). Smart contracts (programs written on the blockchain) are used by AMMs to set prices and execute trades. Because they are decentralised, these exchanges do not have a centralised governing body that manages orders. They can provide decentralised financial services, also known as DeFi. Because of their liquidity pools, AMMs such as Uniswap can offer crypto trading. A liquidity pool is a collection of user-contributed crypto funds that are locked in a smart contract. When people want to trade cryptocurrency, they use funds from the liquidity pool.
Uniswap deducts a small fee from each transaction and distributes it among the liquidity providers in a pool (the people who have deposited their crypto into the pool). It’s a win-win situation for both parties. Because of its liquidity providers, Uniswap is able to offer crypto trading, and its liquidity providers earn crypto because they all receive a cut of the exchange’s transaction fees.
Some cryptocurrency exchanges have clumsy designs and a poor user experience. Because of its design, Uniswap was one of the first popular decentralised exchanges. The Uniswap app is very user-friendly, so learning how to use it doesn’t take long. It’s simple to connect a crypto wallet, exchange one cryptocurrency for another, or deposit your cryptocurrency in a liquidity pool.
Earn interest by staking crypto
Because it is a decentralised exchange, Uniswap relies on crypto funds from its users through liquidity pools, which are pools that contain two cryptocurrencies. Anyone with cryptocurrency can stake (deposit) it in these pools and become a liquidity provider. Uniswap charges a small fee on each cryptocurrency trade and distributes it among all liquidity providers for those two cryptocurrencies.
Here’s an example to demonstrate how this works. Assume you have USD Coin (USDC) and Ethereum (ETH). You could put equal amounts of each cryptocurrency into Uniswap’s USDC/ETH liquidity pool. Then you earn cryptocurrency whenever someone exchanges ETH and USDC on Uniswap.
Liquidity is critical for decentralised cryptocurrency exchanges. To complete trades, they require a large amount of cryptocurrency funds. A decentralised exchange with insufficient funds is detrimental to traders and liquidity providers. Traders may be unable to exchange the cryptocurrencies they desire. Fewer trades result in fewer fees, and the exchange’s liquidity providers earn less.
This is where Uniswap’s size comes into play. In terms of total value locked (TVL), it is one of the largest decentralised exchanges. You should have no trouble trading crypto or earning interest as a liquidity provider on Uniswap.
No registration required
If you’re tired of having to go through a lengthy sign-up process for cryptocurrency exchanges, Uniswap is a breath of fresh air. You are not required to provide any personal information or to create an account. All you have to do is connect your cryptocurrency wallet and you’re ready to trade or stake cryptocurrency.
The fact that Uniswap does not require any personal information has some disadvantages. It cannot be used to purchase cryptocurrency with fiat money, and there is the possibility of regulatory issues. Uniswap, on the other hand, is fantastic in terms of convenience and privacy.
Potential use cases for UNI
Uniswap is a leading DEX in terms of volume and liquidity, with the development team working tirelessly on Uniswap Version 3 to expand the use cases of the UNI token. UNI’s primary function is to govern the Uniswap protocol, with the token’s future in the capable hands of its liquidity providers and users. There are two applications for UNI:
- It is used for voting and platform governance.
- Adding liquidity to Uniswap and beginning to earn UNI tokens.
The Uniswap platform is upgraded and governed by UNI holders via three models: governance, the UNI token, and Timelock. All of these contracts enable the community to vote on, propose, and then implement protocol changes. When a proposal is presented, the community has three days to vote on it, and if the majority approves, it is queued in the Timelock. When a proposal enters Timelock, it takes at least two days before it is executed.
Pros and Cons
|The Internet Computer provides a decentralised, censorship-free framework.||In just a few days of trading, ICP has seen large jumps and sharp declines, making it extremely volatile and susceptible to fluctuations.|
|The Internet Computer is open to the public and can be accessed by anyone in the world.||Regardless of technological advancements, ICP is not significantly different from other altcoins.|
|Internet Computer began its journey with significant investor interest, charting the course from the start.||Its decentralisation and permissionless transactions are fraught with uncertainty.|
|ICP is available on the majority of cryptocurrency exchanges.||The future of ICP and the network is based on possibilities rather than certainties.|
|Since their introduction, Internet Computer and ICP have gotten a lot of attention.|
|Development is supported by a strong and stable team.|
|Smart contracts are supported, and more can be added in the future.|
Trading Fees – 0.3%
Withdraw fees – 0.26 UNI
When compared to other decentralised exchanges, Uniswap offers a number of advantages to small traders. Uniswap, in particular, has no listing fees, no native tokens required, and some of the lowest gas costs of any DEX.
The project is open-source and implicitly permissionless on GitHub, which means that anyone can create an ERC market. Uniswap is currently one of the most popular DEXs and has quickly become the most popular platform for trading DeFi tokens.