What is Uniswap

What is Uniswap

Uniswap is a well-known decentralized trading system that is credited with making automatic trading of decentralized finance (DeFi) tokens possible. Aiming to increase trading efficiency compared to traditional exchanges, Uniswap wants to maintain token trading automated and completely accessible to anybody who possesses tokens.

The Ethereum blockchain, the second-largest cryptocurrency project in the world by market capitalization, is the foundation on which the Uniswap platform was developed in 2018. As a result, it is compatible with all ERC-20 tokens and supporting infrastructure, including wallet services like MetaMask and MyEtherWallet.

Additionally, Uniswap is entirely open source, allowing anyone to replicate the technology and build their own decentralized exchanges. Users may even list tokens on the market for no charge. This alone is a significant distinction from traditional centralized exchanges, which are profit-driven and levie exorbitant listing costs. Because Uniswap is a decentralized exchange (DEX), users always retain control over their money, unlike centralized exchanges that force users to hand over their private keys so that orders can be logged on a database instead of being carried out on a blockchain, which is more time-consuming and expensive. It prevents the possibility of losing assets in the event that the exchange is ever hacked by keeping custody of the private keys.

How does Uniswap work?

Uniswap departs from the conventional design of a digital exchange since it lacks an order book. It operates using a model known as Constant Product Market Maker, a variation of a concept known as Automated Market Maker (AMM).

By putting a priority on decentralization, censorship resistance, and security, Uniswap eliminates the need for trusted intermediates. Uniswap is GPL-licensed open-source software. Each Uniswap smart contract, or pair, is responsible for managing a liquidity pool that consists of two ERC-20 token reserves. Liquidity providers supply the funding for these reserves. Anyone who deposits a sum equal to the value of two tokens into the pool qualifies as a liquidity provider. In exchange, traders pay a charge to the pool, which is subsequently divided among liquidity providers in accordance with each one's pool share. Let's explore this more thoroughly with Builder.news.

Providing liquidity on Uniswap

How does Uniswap work?

Source: UniSwap docs

Users who deposit two coins to a DEX are known as liquidity suppliers. On a decentralized exchange, whenever someone trades these two tokens or coins, the liquidity provider receives a small portion of the transaction fee.

By funding it with an equivalent amount of ETH and the ERC20 token being swapped, any token can be added to Uniswap. To construct an exchange for an alternative coin called Alpha Token, for instance, you would create a new Uniswap smart contract for Alpha Token and a liquidity pool using, for instance, $50 worth of ETH and $50 worth of Alpha Token. The way Uniswap is different is that it uses an equation that is always true: x * y = k — instead of bringing buyers and sellers together to negotiate the price of Alpha Token.

In the equation, k is a constant value, and x and y stand for the number of ETH and ERC20 tokens that are available in a liquidity pool, respectively. The price of a given token is determined by this equation, which also considers supply and demand and the balance between ETH and ERC20 tokens. When someone purchases Alpha Token with ETH, the price of Alpha Token rises since there are less Alpha Token available while there are more ETH available.

As a result, trades are the only way for the price of tokens on Uniswap to fluctuate. In essence, Uniswap is balancing the value of tokens and allowing for their switching based on how much individuals wish to purchase and sell them for.

Uniswap yield farming

Yield farming, often referred to as liquidity farming, operates by first enabling an investor to stake their coins by putting them into a lending protocol through a decentralized application, or dApp. Then, other investors can use the dApp to borrow the coins, which they can use for speculating in an effort to profit from sudden changes in the market value of the coin.

In order to maximize the return on their staked coins, yield farmers may employ DeFi sites that provide a variety of loan incentives. One of the best yield-farming protocols to be aware of is Uniswap. In Uniswap, liquidity suppliers are required to stake both sides of the pool equally. You receive UNI governance tokens in addition to a percentage of the transaction fees in return.

UNISWAP Yield Farming Tutorial For Beginners (Source: DEFIYIELD)

>>> Read more: Staking, yield farming, and liquidity mining: Pros and cons comparison

How to use Uniswap

There are no buy orders or special listings on Uniswap, making it unlike other exchanges. Any trader can add liquidity to a particular pair there. They can swiftly remove that liquidity, which will make it more challenging for you to exchange your tokens back and forth. You must therefore make sure that the liquidity is locked for the currency pair you want to trade. The website Uniswap.info is where you may monitor the exchange's data. Here, you may search for pairs, check the volume on specific pairs, see the price of tokens, and more.

Uniswap V2 and V3

Uniswap was introduced in November 2018, but it wasn't until lately that the protocol started to gain substantial momentum.

When Uniswap V2 was released in May 2020, it had a significant update that allowed for direct ERC20 to ERC20 swaps, removing Wrapped Ether (WETH), whenever possible. Additionally, Uniswap V2 included support for ERC20 tokens that are incompatible with each other, such as OmiseGo (OMG) and Tether (USDT), and made a number of technical enhancements that make it easier to use.

Since many DeFi platforms allow Uniswap liquidity providers to get an additional return on their LP tokens, Uniswap witnessed a similar rise in demand as liquidity mining and yield farming platforms dramatically surged in popularity in 2020.

By total value locked (TVL), a metric of the total value of crypto assets locked up in the platform, Uniswap has risen the ranks to become one of the top DeFi platforms. TVL is a measure of the total value of crypto assets locked up in the platform. It is combined with the 0.3% exchange fees distributed to liquidity providers and the platform's popularity as a launchpad for popular DeFi project tokens.

Uniswap V3 was released in May 2021, and the most recent version of the DEX has a lot of additional capabilities. Consolidated liquidity is the first type, which enables liquidity providers to distribute liquidity within a specific price range. That consequently implies that traders don't need to risk as much money to see returns.

When trading volatile assets (which might change in price between the time a trade is initiated and executed), traders can better assess their level of risk thanks to the addition of more fee tiers in version 3. It also has "cheaper and easier" oracles, ensuring that the DEX's price information is accurate. In addition, it creates non-fungible tokens (NFTs) based on LP positions, converting them into "on-chain created art" as a final step.

About UNI token

UNI token

The native token of Uniswaps, UNI, is a governance token. Launched in September 2020, Uniswap allows holders to decide how the platform should develop going forward, including how newly produced tokens should be allocated to the community and developers and any adjustments to fee structures.The purpose of the UNI token is for usage in governance. Owners of UNI have a voice in and a vote on Uniswap development choices. Grants, alliances, liquidity mining pools, and other ideas can all be funded by them. The Uniswap team will soon cease to be personally involved and all governance decisions will be made by holders of UNI tokens.

With a live market cap of $4.785.375.894 USD, the current CoinMarketCap ranking is #19 in the world. It has a maximum supply of 1.000.000.000 UNI tokens and a circulating circulation of 745.584.015 UNI tokens.

How to buy Uniswap token (UNI)

The first thing when you want to buy a certain token is to own a web3 wallet. Once you have selected your wallet, all you need to do is link the wallet to the Uniswap exchange and you can start making transactions. The UNI governance token from Uniswap can be traded on well-known exchanges for other cryptocurrencies, stablecoins, fiat money, and more. Along with the Uniswap protocol itself, Uniswap (V2) and Uniswap, they include Binance, Huobi, and Coinbase Pro (V3).

Uniswap price prediction

All-time UNI token price (Source: CoinMarketCap)

The distribution of UNI to current Uniswap users took the place of an initial coin offering (ICO), or "airdrop," instead. Users that participated in the airdrop in September 2020 received 400 UNI, worth $1,200 each. In essence, UNI serves as a governance token rather than a payment method, making it a tool for Uniswap's decision-making process. Even so, UNI continued to advance in the cryptosphere.

After the release of Version 3 in March 2021, the Uniswap team declared their intention to create "the most flexible and efficient automated market makers (AMM) ever developed." Version 3 was designed to quadruple capital efficiency over Version 2. A bull run that saw UNI cross the $40 threshold in May 2021 was unable to exactly maintain its pace because, like most cryptocurrencies, an early-stage honeymoon value rise was greater than future performance. The coin then ran into problems due to a negative market in the fourth quarter of 2021, which saw most altcoins struggle to maintain prior highs. On December 17, 2021, it reached a low of $13.86.

The bulk of cryptocurrencies have had difficult years in 2022 amid worries about another crypto winter brought on by the most recent market crisis, and the UNI token is no different. Its price dropped by 81%, from $17.81 on January 16 to its 52-week low of $3.37 on June 18. In comparison to the US dollar, UNI was worth $6.39 as of 30 August 2022, a significant decline from its performance throughout much of 2021. Currently, 745,583,615.40 coins are in circulation out of a total quantity of 1 billion tokens.

Recent significant achievements by Uniswap could make a positive influence on the price of the UNI token in the future. To name a few, Uniswap launched Uniswap Venture Labs; offered more liquidity in ETH/USD, ETH/BTC, and other ETH pairs than the top CEXs; bought Genie, the first NFT marketplace aggregator. And the most recent event is the news that Uniswap negotiates with 7 NFT lending platforms with the ambition to "upgrade" the entire field.

Keep in mind that analysts' and algorithm-based forecasts can be incorrect when searching for UNI predictions. All the Uniswap price predictions are based on technical and fundamental analyses of historical performance data for cryptocurrencies. Future outcomes cannot be predicted based on past performance. Research is crucial, and you should never forget that your choice to trade depends on your risk tolerance, market knowledge, portfolio diversification, and comfort level with financial loss. Never trade or make an investment with money that you can't afford to lose.

Uniswap alternatives

Sushiswap supports several chains than Ethereum, such as Binance Smart Chain (BSC) and Polygon, Pancakeswap is one of the first decentralized exchanges established on the Binance Smart Chain exclusively to swap/trade BEP-20 tokens. However, SushiSwap and PancakeSwap are both forks of Uniswap, which arrived first. They stand apart from the crowd thanks to a few intriguing characteristics that have contributed to their increasing appeal. There are a number of reasons why certain traders prefer one DEX over another. It might be the platforms that offer liquidity, the fee schedule, or the accessibility of tokens. However, ultimately, which DEX you should use will depend on your personal requirements and which one you feel most at ease with. The table below shows more clearly the difference between the fees on the three platforms:

Fee	Uniswap	SushiSwap	PancakeSwap
Withdrawal Fee	0.00	0.00	0.00
Taker Fee	0.30%	0.30%	0.20%
Maker Fee	0.30%	0.30%	0.20%

FAQs about Uniswap

Is Uniswap safe?

Yes, because it is based on Ethereum and functions as a decentralized exchange and liquidity pool. Because it is decentralized, there isn't a central server that may be compromised to access user funds. The only potential problems you can encounter when utilizing Uniswap Exchange are caused by user mistakes because the programming and smart contracts have undergone extensive auditing and testing to ensure their safety.

How to connect Uniswap with web3 wallets

Although getting started with Uniswap is rather simple, you must first make sure that your wallet is set up to handle ERC-20, such as MetaMask, WalletConnect, Coinbase wallet, Portis, or Fortmatic. To know how to use uniswap with metamask, how to use uniswap with trust wallet or other web3 wallets, follow these steps below:

Why is Uniswap so expensive?

Fees for UniSwap go into a few different categories. The first is a set platform cost for exchanging any two cryptocurrencies on the platform and is known as the liquidity pool fee. This only accounts for 0.3 percent on UniSwap. The subsequent (and most significant) fees you must pay are gas fees, over which UniSwap has no control and which are solely caused by Ethereum's congestion problems.

How to avoid ETH gas fees on Uniswap?

Trading during off-peak hours is the only effective way to reduce your trading costs. Gas prices often decrease in the morning between 12 a.m. and 8 a.m. ET since there is less demand. Additionally, compared to the other days of the week, Sunday typically has reduced gas prices.

Disclaimer:
This article is intended for and only to be used for reference purposes only. No such information provided constitutes advice or a recommendation that any investment or trading strategy is suitable for any specific name.

Adequate understanding about Uniswap