Uniswap Review for 2021
Uniswap is the biggest crypto trading protocol developed on the Ethereum blockchain. It enables developers and brokers to partake in a financial world that is available and transparent to everyone by offering decentralized trading. This protocol is also the underpinning architecture of the exchange with a shared name – Uniswap.
As one of the leading DEXs in the crypto ecosystem, the Uniswap exchange is nothing like the other crypto exchanges. Namely, Uniswap streamlines the implementation of smart contracts in its trading operations by using an automated liquidity protocol, thus going a step further than other crypto brokerages in pursuing total decentralization of its financial services.
In this article, we’ll review the Uniswap crypto exchange in more detail, as well as the mechanism behind its unique protocols and more. It’s always a good idea to start with the genesis of a project, isn’t it?
About the Uniswap Exchange
The Uniswap exchange is a decentralized, open-source crypto trading platform built on the Ethereum blockchain. It provides financial services and trading tools to all traders interested in exchanging ERC20 tokens. Founded by Hayden Adams, a former engineer of the technological magnate Siemens’, the Uniswap exchange project was launched in 2018. The main goal of the project is to employ smart contracts to automate the cryptocurrency swaps on the Ethereum blockchain network.
The UI of the Uniswap platform is highly intuitive and super-easy to navigate. In high-volume trading orders, it may take more time for your transaction to be approved by the platform, which is the only known fault with the Uniswap interface thus far. In such cases, simply boost slippage tolerance parameters to fix this.
Uniswap, as a DEX, enables crypto traders to swap different ERC-20 tokens by using a clean, user-friendly web interface that removes most of the inefficiencies which are commonly observed in centralized exchanges like lack of liquidity and custody issues. To accomplish this, Uniswap employs the innovative Automated Market Maker (AMM) technology and the Uniswap protocol, while relying on liquidity pools rather than on conventional order books to calculate cryptocurrency prices, process the transactions, as well as complete the financial operations.
Decentralized Exchanges, AMMs, and Liquidity Pools
To begin, decentralized exchanges (DEXs) are cryptocurrency exchanges that do not require the services of intermediaries to conduct crypto asset transactions. As a result, they enable traders to make peer-to-peer transactions. Put in other words, the only humans involved in the trading process are the traders themselves – no clerks to fill out paperwork, process transactions, or middlemen. The human force from the conventional exchanges is replaced by powerful algorithms in the DEXs that are programmed to decide on the best value on a trade. One of such algorithms is the Automated Market Maker.
The Automated Market Maker (AMM) is computerized software that uses real-time analytics to predict the market conditions for placing a trading order on a crypto exchange. The Automated Market Maker’s principal goal is to ensure uninterrupted order flow under all market conditions. This is made possible through alternative quotations for the trading deal at the best possible value, thus allowing investors to buy and sell digital assets virtually 24 hours a day, seven days a week.
One of the major components of the decentralized exchanges in the Uniswap architecture is the Uniswap liquidity pools. This extremely useful trading tool allows even traders with smaller digital funds to trade on DEXs without incurring losses.
To provide liquidity for the new pool, any trader may generate and couple an ERC20 token with ETH. By staking tokens in Uniswap liquidity pools, users may earn from UNI fees and thus become liquidity providers. In this way, Uniswap provides fast trading access to new tokens.
The Mechanism Behind the Uniswap Protocol
The Uniswap protocol (or simply: Uniswap) operates as a permissionless and decentralized technological architecture that provides innovative financial services ever since its development.
In essence, the Uniswap protocol represents a network of non-upgradeable and irreversible smart contracts that combine in order to form an algorithmic broker platform. This automated liquidity protocol also allows for the creation of a peer-to-peer Uniswap exchange, as well as trading ERC-20 tokens on the Ethereum network without the need of a trusted intermediary.
The Uniswap protocol presently comes in three versions. While the Uniswap V1 and Uniswap V2 versions of the Uniswap protocol are available to all and GPL-licensed, the Uniswap V3 version of this protocol also comes with an open-source code, only with minor changes in its programming. Since all these versions of the Uniswap protocol have been built on the Ethereum blockchain, they support the development of new decentralized applications (dApps).
Whereas the Uniswap V2 update includes Flash Swaps, price oracles, and ERC20 token pools, the newest version of this liquidity protocol, which was released in May 2021, is projected to be the most efficient AMM mechanism ever created. Moreover, the V3 version of the Uniswap protocol will allow liquidity providers to indicate custom price ranges for which they want to offer liquidity.
The UNI Token
In the Uniswap cryptocurrency exchange, Uniswap (UNI) is the native token of the Uniswap trading platform that allows for decentralized cryptocurrency trading. The foundations of Uniswap (UNI) may be traced back to 2016 when Ethereum’s co-founder Vitalik Buterin introduced the idea of a decentralized automated market maker.
Launched on September 16th, 2020, the UNI token was created as a governance token. Since it is projected as a type of corporate share, owners of UNI are permitted to vote on how the platform is operated. In this way, they are allowed to govern the direction in which the crypto project will develop further.
Uniswap lists more than 1,800 coins and around 2,500 trading pairs. The exchange supports Ether (ETH) and all ETC-20 based coins, as well as a vast number of other altcoins and tokens. While Bitcoin (BTC) can be traded, it must be wrapped first (WBTC). Uniswap doesn’t support cryptocurrency projects developed on platforms other than the Ethereum blockchain.
While trading on the Uniswap exchange platform, users may choose from a variety of payment options, including debit cards, credit cards, bank transfers, and digital wallets. USDC/ETH and DAI/USDC are the most active trading pairs on the Uniswap v3 exchange platform.
Trading Fees and Limits
Based on the pairing you swap, Uniswap charges a 0.05%, 0.30%, or 1.00% fee on every trade you place on the site respectively. These transaction fees are automatically added to the liquidity pool, although liquidity providers can retrieve them at any stage of their trading process.
Is Uniswap Safe to Use?
Unlike the practice of centralized exchanges, Uniswap allows you to keep your private keys when trading on its platform. It also fights shy of the KYC (Know Your Customer) process that demands sensitive data from the users. As a result, Uniswap users are the only custodians of their crypto assets, which makes this trading platform one of the safest in the crypto universe.
The Uniswap trading platform has developed a Help Center that holds an extensive knowledge base regarding the Uniswap protocol basics, a short tutorial on how to swap cryptocurrencies on this platform, provide liquidity, wallet integration, etc. If you still cannot find an answer to the issue you have with this DEX, the developers of the platform encourage you to reach out through their support channels.
Frequently Asked Questions
How to use Uniswap?
Uniswap has an easy-to-use interface that enables its users to link their ERC-20 token supporting wallets (like Metamask, WalletConnect, Portis, or Coinbase Wallet) to the platform and begin trading almost instantaneously.
For this, first, you’ll need to set up your preferred Ethereum wallet and deposit some ETH in it. Do have in mind that each transaction on the Ethereum blockchain is subject to gas fee expenses that go to the crypto miners in exchange for maintaining the network safe and functional.
Next, connect your digital wallet with the platform via the Uniswap app. You can simply access it by clicking on the designated pink button in the upper right corner of this DEX’s online interface. Once you’re done with this step, you can immediately start swapping coins. The app’s UI will intuitively guide you through the process of successfully completing your transaction. When the transfer is finished, the Uniswap platform will send the user an Etherscan link to the transaction.
What Is DeFi?
DeFi (or decentralized finance) is a global, fast-developing peer-to-peer concept in the fast-paced world of financial technology, which converts aspects of conventional banking into fully decentralized and open-to-all protocols using smart contracts and token frameworks.
The idea of the decentralized finances concept includes many of the financial instruments used by the traditional banking system (such as money transfers, currency exchanges, trading, and earning interest), but the financial activities are decentralized, anonymous, and a lot faster with DeFi.
What countries are not supported by Uniswap?
Cuba, Belarus, Iran, Iraq, Liberia, Côte d’Ivoire, Sudan, North Korea, Zimbabwe, and Syria are presently unable to access Uniswap exchange services.
The Bottom Line
Uniswap is one of the most reputable and trusted DEXs. Built on the Ethereum blockchain, this permissionless and decentralized trading platform provides secure and decentralized transactions by implementing self-executing smart contracts that eliminate the need for a middleman.
This open-source trading platform became one of the most popular decentralized exchanges by merging the Automated Market Maker (AMM) with the unique Uniswap protocol, as it offers custom-built trading systems that meet the specific demands of its users. Liquidity pools are perhaps one of the most popular features among Uniswap users, as they allow even traders with limited financial resources to trade on this DEX without risk of significant financial loss.
Finally, the Uniswap crypto trading platform has successfully removed the need for an intermediary in the transaction processes and is safe to say it’s a secure platform for trading digital assets. In comparison to exchanges like Binance or Coinbase, the Uniswap transaction costs are also fairly modest, which adds to the exceedingly favourable user experience.