The world of cryptocurrencies is constantly growing and developing, so innovative platforms with new features are emerging. Uniswap can undoubtedly be considered one of the revolutionary decentralized cryptocurrency exchange platforms that is firmly taking its place in the DeFi world. This platform started from Ethereum, but now it supports Polygon, Celo, BNB Chain, Arbitrum, and Optimism networks and changes the way we trade and interact with digital assets. Moreover, using a unique automated market creation (AMM) protocol, Uniswap allows users to trade cryptocurrencies directly from their digital wallets, without having to deal with intermediaries.
It is this innovative approach to trading that has brought Uniswap to widespread attention and turned it into one of the most significant and trusted platforms in the DeFi ecosystem. However, the basis of the platform's success is its own governance token UNI, which gives its owners the opportunity to influence the future of the platform. In this article from Notum, we'll go into the details of how Uniswap works and explore the importance of the UNI token in the ever-evolving DeFi space.
What Is Uniswap?
Uniswap is a crypto platform and a DEX running on the Ethereum blockchain. For operating, Uniswap uses an automated market makers (AMM) protocol, which allows users to exchange and trade various cryptos with no intermediaries. Moreover, Uniswap is currently the largest decentralized exchange in terms of both TVL (total value locked) and trading volume. Statistics as of June 2023 show that Uniswap holds 58.7% of the trading volume of all DEXs. Uniswap's trading volume exceeds that of Coinbase, one of the largest CEX exchanges. Also, users do not need to go through identification or registration to use Uniswap, which makes the platform safe and anonymous. "It eliminates trusted intermediaries and unnecessary forms of rent extraction, allowing for safe, accessible, and efficient exchange activity." - Uniswap.
Uniswap provides an opportunity for any user to create liquidity for a specific pair of cryptocurrencies by adding their funds to the liquidity pool. To create a new pool or provide liquidity, the user needs to connect a Web3 wallet in the Uniswap interface. For providing liquidity and trading on the platform, users receive commissions, which in turn helps ensure that various tokens are always available and exchangeable.
Uniswap continues to be in demand and popular in the DeFi ecosystem due to its decentralized and transparent nature, as well as the ability to exchange tokens without the need to involve an intermediary and risk your assets.
How Does Uniswap Work?
As already mentioned, the work of Uniswap is largely based on the AMM protocol, which allows users to exchange tokens among themselves without intermediaries. Uniswap can also be described as a set of smart contracts that define how liquidity pools are created and liquidity is provided. In simple words, the operation of the platform is based on the creation and management of liquidity pools. By adding tokens to the pool, users thereby ensure its liquidity.
It is important to note that each liquidity pool has two assets, so to add tokens, the user must deposit an equal amount of two different tokens in a pair (for example, ETH and DAI). After that, the pool automatically determines its exchange rate. The peculiarity of the platform is also that the reserves and prices are updated automatically every time someone trades on Uniswap.
If a user wants to exchange one token for another, the Uniswap system uses an automatic liquidity generation formula to determine the price. The exchange takes place directly between the user and the liquidity pool, without any third parties. It is important to note that all transactions on the platform require fees (and cost ETH), which in turn are distributed among the pool members according to their contribution.
What Makes Uniswap Unique?
- Accessibility. Any user holding crypto assets can create liquidity by adding their tokens to the Uniswap pool. Thus, the platform is open and allows users to trade various tokens without having to go through the registration process.
- Decentralization. Since Uniswap is powered by Ethereum smart contracts, there is no central authority or intermediaries. Thus, the platform provides not only transparency but security.
- AMM. As you know, Uniswap uses AMM, which allows users to exchange tokens without having to find someone for the deal. Thus, the exchange process is simple, fast, and convenient.
- Participation fees. Members of the Uniswap pool receive commissions for providing liquidity and trading. Since each transaction on the platform requires a fee, it is distributed among the pool members for their contribution. In this way, the platform stimulates users to provide liquidity and keep it running.
- UNI Token Management. Democracy on the platform is achieved through the existence of the native Uniswap token - UNI. It gives token owners the right to vote on important issues related to the development of the platform.
How to Use Uniswap?
- Create a wallet. Since Uniswap runs on Ethereum, you need an Ethereum wallet to store your tokens. You can choose from various options including Trust Wallet and Trezor.
- Get ETH. To trade on Uniswap, you will need some ETH as the coin is used as the base currency for exchanging other tokens.
- Connect to Uniswap. The platform offers instructions on how to connect your Ethereum wallet to Uniswap through the Uniswap web interface or mobile app.
- Exchange tokens. The main page of Uniswap has a token search where you can select a pair of tokens to swap. Then, you will need to specify the amount you want to exchange.
- Confirm the transaction. As soon as you see the transaction confirmation window, make sure that the amount and parameters are correct and confirm the transaction in your wallet.
- Complete transaction. Since transactions on Uniswap require confirmation on the Ethereum network, you need to wait for their successful completion.
Also, before using Uniswap, it is important to remember that the platform charges transaction fees in ETH, which can increase during periods of increased activity on the network.
What Is UNI Token?
UNI token is a Uniswap protocol governance token that was released in September 2020 as a native protocol token. The token performs several functions in the Uniswap ecosystem. First, UNI is used to vote on protocol changes and protocol control. Also, its holders can propose and vote for changes to Uniswap's rules and parameters. "UNI holders govern the Protocol through an on-chain governance process." - Uniswap.
Even though the price may fluctuate depending on supply and demand in the market, UNI token remains in demand among traders and investors and ranks 24th in popularity in the world. The cost of UNI token according to CoinMarketCap is currently $5.54. Below you can find other token statistics as of July 4, 2023.
- Total Supply: 1,000,000,000 UNI
- Circulating Supply: 753,766,667
- TVL: $4,084b
Where Can You Buy UNI?
The UNI token can be bought on various cryptocurrency exchanges and platforms where it is traded. The main ones include:
- Centralized Exchanges: UNI token is available on many well-known centralized exchanges such as Binance, Coinbase, Kraken, and more. On such platforms, you can buy UNI using fiat money (e.g. USD, EUR) or other cryptocurrencies.
- Decentralized Exchanges: UNI can also be bought on decentralized exchanges such as SushiSwap, 1inch and others, including Uniswap itself.
However, before buying UNI, make sure the platform you choose is reliable, and consider the availability of trading pairs, liquidity, and commissions. Beyond that, take time to complete the necessary verification procedures and use a secure UNI wallet.
How Can I Use My UNI Tokens?
Uniswap Protocol Token has several use cases:
- Participation in voting. UNI token holders can vote on proposals and changes related to the Uniswap protocol. By sharing their opinions on issues related to the development, improvement and parameters of the protocol, users have an impact on the future of Uniswap.
- Staking. The UNI token can also be used for staking in certain protocols or pools. For staking UNI, users are thanked with additional UNI tokens or other rewards, depending on the chosen protocol.
- Exchanging and trading. UNI can also be exchanged for other cryptocurrencies or tokens on CEX and DEX. Thus, with the help of UNI, users can both diversify their portfolio and trade.
- Participation in the DeFi ecosystem. UNI can be used in various projects related to DeFi. While the token can be used as a payment method, it also gives access to the services of investing in DeFi instruments, such as loans, insurance, or liquidity protocols.
- Investment. If users believe in the potential of the Uniswap platform, they can use UNI as an investment and a store of value.
UNI is a key part in the Uniswap ecosystem, one of the most popular and innovative crypto platforms in the DeFi space. The token gives its holders the opportunity to vote, receive rewards for staking, and use it for trading and investing. In addition, UNI plays an important role in the development of the Uniswap protocol and promotes the decentralization and democratization of DeFi services. Despite the risks, the UNI token represents one of the main elements in the evolution of DeFi and has significant potential to increase interest in Uniswap.
Disclaimer: Notum does not provide any investment, tax, legal, or accounting advice. This article is written for informational purposes only. Cryptocurrency is subject to market risk. Please do your own research and trade with caution.