- It allows users to trade crypto without intermediaries
- Uniswap incentivizes liquidity providers by providing rewards.
What is Uniswap?
Uniswap is an Ethereum-based decentralised exchange that allows peer-to-peer crypto exchange, eliminating the need for an intermediary. It allows the crypto community to trade crypto from anywhere in the world. This decentralised application was launched on Ethereum in the year 2018. It has its own liquidity pool, with the help of which it is able to provide liquidity to the users.
Uniswap has its own token called UNI, which is listed on the coin market cap and has a market cap of $3,572,736,944. Uniswap is known for providing automated trading opportunities in the decentralised finance market. Anyone can list tokens on Uniswap. This app runs on smart contracts, ensuring the truthfulness of the transactions and the security of the money.
How Does Uniswap Work?
Since Uniswap is based on Ethereum, it works with the help of smart contracts. These smart contracts allow the swapping of digital assets via liquidity pools. Smart contracts are used to automatically rebalance every trade. This application functions like an electronic ledger. Since this application is not under any entity’s control, it is called the automated market maker.
A liquidity protocol powers this platform. This protocol works on a formula called the constant formula. This formula is fitted into the non upgradeable smart contract, which controls the functioning of this protocol. This protocol is censorship resistant as it works on smart contracts and is also open source. The security can be verified by the fact that it is under the GPL.
Uniswap allows everyone to become a liquidity provider. To become a liquidity provider, users must deposit an asset of equal value to the pool tokens. Uniswap works on constant product formulas. This formula is X*Y=K; in this formula, k remains unchanged.
Uniswap applies a fee of 0.30% on the trades, and this fee is automatically added to the reserves of Uniswap.
Advantages and Disadvantages of Uniswap
Uniswap has many advantages, such as:
- Uniwap is available to all participants. It is free to use, and any user from any part of the world with a constant internet connection can use this protocol.
- Uniswap works on smart contracts, which makes trading easier and more reliable.
- The governance model that Uniswap follows allows all the participants to vote and take part in the governance. This allows Uniswap to introduce better changes in the interests of the users.
Disadvantages of Uniswap
- Uniwap is still not able to provide a wide range of cryptocurrencies to exchange. Users get only a limited number of cryptocurrencies that are Ethereum-compatible.
- The transaction and processing fees are paid with Ethereum only; hence, users must own Ethereum to use Uniswap.
- Users must have a self-compatible wallet to use Uniswap.
UNI Liquidity Token
The token of Uniswap is called the UNI token. This token is an ERC-20 token. It ranks 24 in coinmarketcap in terms of market cap and holds a market cap of $3,564,006,846. Currently, this token is trading at a price range of $6.18 with a circulating supply of 577,501,036 UNI. The maximum supply is capped at 1,000,000,000, which means that 58% of the token has already been mined.
Conclusion
Uniswap stands as a leading decentralised crypto trading platform built on the Ethereum blockchain. With its automated market maker model and liquidity pools, it offers users the ability to trade crypto without intermediaries. While it has several advantages such as accessibility and governance, it also faces challenges with limited cryptocurrency options and Ethereum-specific fees. Overall, Uniswap continues to play a significant role in the growing decentralised finance ecosystem.
