Guide to Uniswap: What Is It & Why Is It Useful

Guide to Uniswap: What Is It & Why Is It Useful

Uniswap is a cryptocurrency and decentralized exchange (DEX) in the rapidly growing crypto market. It is built on the Ethereum blockchain and allows users to exchange ERC-20 tokens, which can be used to represent a wide range of digital assets, as well as financial value. This cryptocurrency only lists tokens that are built on Ethereum (ETH). Uniswap allows people to trade different tokens on the Ethereum blockchain in a safe and secure way without having to rely upon a centralized exchange.

In the following article, we share everything you need to know about Uniswap and why it is useful. 

Guide to Uniswap: What Is It & Why Is It Useful

Uniswap Coins in Circulation

The total amount of Uniswap tokens is 1,000,000,000 UNI, but only 762.2 million UNI are in circulation. 40% of the total amount is distributed amongst the team members, while 60% is free to be traded amongst community members. There are several factors that influence the Uniswap coin price including technical and fundamental developments, exchange inflow and outflow, as well as the news cycle and general economic environment. Its current price is $5.48.

How Does Uniswap Work?

Uniswap has a new architecture that eliminates the need for centralized digital exchanges. The adopted Constant Product Market Maker design represents a variation of the more popular decentralized exchange model Automated Market Maker (AMM).

Automated market makers are smart contracts that have liquidity pools that traders can trade against. Incentivized liquidity providers fund these reserves. Anybody who can deposit the equivalent of two tokens into the pool is eligible to become one of these liquidity providers. In exchange for their shares in liquidity pools, traders must pay a fee that is distributed to liquidity providers according to their share.

By depositing two equal tokens, liquidity providers create a new trading market. These tokens can be ETH, any ERC-20 token, or two ERC-20 tokens. These pools often contain stablecoins like DAI, but it is not mandatory. Uniswap liquidity providers get liquidity tokens in return for creating markets and liquidity that traders can trade. These liquidity tokens typically represent their portion of the overall liquidity pool.

Founder of Uniswap

Hayden Adams released Uniswap for the first time in 2018. Uniswap v2 was launched in 2020, allowing direct swaps between any ERC-20 token on Ethereum.

Uniswap’s September 2020 UNI token launch included an airdrop of 400 UNI tokens to any ETH addresses that had made a transaction on the network before September 1st.

Depending on how much liquidity users provided to the Uniswap Protocol, some users were eligible for more tokens.

Why Is Uniswap Unique?

One of the most unique aspects of Uniswap is that it does not generate any revenue. Instead, Uniswap uses a decentralized protocol, and users provide all the liquidity. This is far more than centralized exchanges where all fees are absorbed by the central authority.

The current transaction fee to the liquidity providers of the network is 0.3% per trade. These funds are sent automatically to the liquidity pool, so liquidity providers can redeem them at any moment. The pool’s share determines how these trading fees will be distributed.

A portion of future trading fees could be used to support Uniswap development. 

Guide to Uniswap: What Is It & Why Is It Useful

What Gives Uniswap Value?

Uniswap launched UNI, its governance token on September 17, 2020. They haven’t conducted an ICO or any type of token sale in general. Uniswap will distribute UNI tokens to its community members, active traders and liquidity providers, according to a schedule.

To celebrate its launch, Uniswap offered 400 UNI tokens, estimated at $1,500 at the time of the airdrop, to users who have previously used the Uniswap exchange protocol.

Users will be also able to earn UNI tokens through the staking of tokens in Uniswap’s liquidity pools. Commonly, liquidity mining or yield farming is the act of staking tokens to reap rewards from the liquidity pools.

The UNI token was designed for use in the future governance and operation of the Uniswap protocol. UNI holders with a minimum of 1% of the total UNI supply are eligible to submit development proposals. However, any UNI holder can vote on these proposals regardless of their UNI supply. UNI holders are also eligible to contribute to grants, partnerships, liquidity mine pools, and other activities.

Uniswap governance was designed so that the core Uniswap staff can step out completely of the decision-making process, resulting in a fully self-sustaining protocol.

Bottom Line

Uniswap has improved a lot since it first emerged on the crypto market. Even though it doesn’t generate any personal revenue, the platform allows its traders to successfully trade coins and make profits. This article explained the basics of Uniswap so that you can invest like a pro in the future.