What is Uniswap?
An open-source software completely decentralized and formed on Ethereum is the Uniswap. Unlike using an order book in the traditional cryptocurrency exchange platforms, Uniswap makes use of an ‘automated liquidity protocol’ meaning, investors do not have to take help from any decentralized party for exchanges. Since it is an open-source platform, investors can check Uniswap by themselves on Uniswap GitHub. In short, Uniswap allows you to trade in a decentralized manner without the interference of any intermediaries.
In centralized exchanges, a high amount of fees is charged for listing new coins, while in decentralized exchange platforms, the code can be copied by anyone and neither does it charge any fee. Being a decentralized platform, Uniswap gives opportunity to the users to monitor and control their digital assets against centralized exchange platforms where traders have to hand over their private key for a third party to log into the database. This is not just expensive but also takes a lot of time. Uniswap does not allow any custodian to take charge of the private keys, thereby reducing hackers’ risk of looting their digital assets.
History of Uniswap
In 2016, Vitalik Buterin came up with an idea to create a platform for conducting decentralized exchange that would contain unique features in its secure automated protocol. After a year, Hayden Adams took up this idea and began working on it to create something more functional. Soon, the Ethereum Foundation helped Adams with $100,000 and other allowances. The year 2018 witnessed the introduction of Uniswap in the cryptocurrency market.
What makes Uniswap different from others?
Although there are various cryptocurrency exchange platforms, as a digital trader, you should choose Uniswap for the following reasons:
- Pliable
If you have two assets of Ethereum in the present exchange network protocol, you can easily swap one with another without having to do much with the network that you are currently using. Added to this, once you provide coins equal in value to two coins of ERC-20, you don’t need to worry anymore. Since this is an open-source platform, you have to be careful enough to handle projects. Be careful about falling prey to scammers.
- Resistant to censorship
Since there is no centralized authority in Uniswap, therefore, you don’t have to worry about your digital asset getting seized or blocked. No third-party integration is allowed by Uniswap, who will dictate to you the amount you have traded or how much you can invest. Uniswap is a decentralized global exchange platform where all users are equal. This is how Uniswap does justice to its decentralized feature.
- Provides more options for trading
Although Uniswap is a decentralized exchange platform, the price of token listings differs. These differences can be made equal if one invests in DeFi and CeFi.
- Private
Unlike centralized exchange platforms, decentralized ones impart more privacy to traders. What makes Uniswap, a decentralized protocol network, more popular than the others is its opportunity to provide access to all, no KYC transaction, and transaction without any registration to the network. Hence, you can call Uniswap to be anonymous.
- Secure
Even if hackers pounce on Uniswap to hack digital assets, they fail to do so as it is a secure platform. However, when investing in Uniswap, it is better to be careful about the scammers as there is no quality control here.
- Consistent
The Uniswap always maintains compatibility with the standards of ERC-20 tokens. Besides, it also allows API integration of the third party. Here, the investors are allowed to use other outside tools to enhance their trading. The UX of Uniswap can be improved with trading bots and other tools that support market management.
How does Uniswap work?
The working of Uniswap is determined by the Constant Product Market Marker, an alternative to Automated Market Maker. These smart contracts do not allow marketers to trade with liquidity pools. To be a liquidity provider, you have to deposit a value equal to the valuation of two tokens. These two tokens can either be two ERC-20 or an ERC-20 and an ETH. The liquidity pools are formed with stable coins. However, this is not mandatory.
Then, Uniswap multiplies the value of both the tokens to find out the total liquidity. While calculating, it should be kept in mind that the multiplication value should be constant. The larger the value, the more expensive it is. The formula for calculating Uniswap is: x*y=k, where ‘x’ and ‘y’ stands for the two tokens and ‘k’ is the total liquidity which should be constant. A vital aspect that liquidity providers should be aware of is the impermanent loss.
Since Uniswap is an entirely decentralized platform, all the digital assets are allotted to the traders. The founders do not get a single penny out of it. At present, the transaction fee rate that liquidity providers get is 0.3% for each trading. Although this fee is added to the pool, providers can get them any time they want. Some part of this transaction fee is sent for the development purpose of Uniswap.
How to use Uniswap?
Are you interested in swapping coins using Uniswap? Here are the steps that you need to follow:
- Log into the Uniswap app.
- Get connected to the Ethereum wallet
- Check out the dropdown menu and choose the token that you want to change as well as the cryptocurrency with which you would prefer swapping.
- Tap on the option ‘Swap.’ Immediately, a window pops up to view the transaction and then finalize from the cryptocurrency wallet.
- Now, relax and wait for a while to finalize the transaction on the Ethereum blockchain.
