What is Uniswap Exchange and UNI Token?

By | February 15, 2021

Uniswap is probably the most popular decentralized cryptocurrency exchange, or DEX (Decentralized Exchange). It was established in 2018 and has grown significantly since then. The interface is easy to use, and setting up an account does not require verification – unlike many cryptocurrency exchanges.

Uniswap - UNI

What are the advantages of this exchange and why should you be interested in it?

Great Trading Opportunities

Users are free to buy and sell tokens based on Ethereum protocols – ERC-20. The protocol has no quotations, and does not charge a fee for them. Users can place their tokens in the so-called liquidity pools determining which of them will be listed on the market.

The latest version of Uniswap v2 allows you to create a cryptocurrency pair from any tokens. It may happen that the selected pair is unavailable, but the offer of the exchange is wide and constantly modified. The exchange does not keep user deposits, but they are controlled by smart contracts, which ensure the security of transactions. Therefore, the funds after each transaction are deposited in investors’ cryptocurrency wallets.

Uniswap users wishing to use the exchange do not have to provide their data (KYC), but remain fully anonymous.

No Databases with User Information

Centralized exchanges collect user data and store it on servers (except for a few exchanges, e.g. Binance, where verification or sending sensitive data is not required). They log into their account, most often with a login and password – or a code they receive in SMS. In turn, the login information is stored in databases that make up centralized exchanges.

Although the data is secured, there is a risk of it being stolen by hackers. One example of such an attack is the exchange of formulas based on the proportions of tokens in their liquidity pools, from which cybercriminals have stolen as much as $ 200 billion in cryptocurrencies.

In some cases, investors received a refund of funds lost due to theft, but not all of them. It is worth knowing that access to data stored in the databases of centralized exchanges can be obtained by state institutions in various circumstances.

Uniswap, on the other hand, solves this problem.

No Censorship on Uniswap

The idea behind cryptocurrencies is no restrictions, thanks to decentralization. In practice, this means that Uniswap users are free to transact because they remain completely anonymous. Thanks to this, they are not subject to the control of any state institutions. However, on centralized exchanges, the government can access data and funds accumulated by investors, e.g. on an investment fund. In addition, users of centralized exchanges are subject to government regulation. On the other hand, the collected funds may be frozen or completely confiscated.

Uniswap was created to solve these problems. They use a peer-to-peer (P2P) network and transactions are verified using automated algorithms. Uniswap, instead of the order book, uses formulas based on the proportions of tokens in its liquidity pools. The use of oracles allows for reliable prices and prevents manipulation by “big players“.

Perfect Integration with Wallets and Deposit Control

The Uniswap exchange perfectly integrates with digital wallets, incl. with: MetaMask, WalletConnect, Coinbase Wallet, Fortmatic, and Portis. Therefore, users, unlike centralized exchanges, do not have to set up a wallet on the platform, but only integrate it with it.

Investors can make money by placing their tokens in liquidity pools. Also noteworthy is the low commission, which amounts to 3% per transaction. Investors have sole control over their funds which do not come under a central authority such as a bank.

UNI – the Uniswap Exchange Token

On September 17, 2020, Uniswap introduced its own token called UNI, which is distributed according to the issue schedule. The conducted airdrop resulted in users who made at least one transaction on the exchange before September 1, 2020, receiving UNI tokens – worth up to $ 300. The holders of these tokens will be able to earn money by placing them in the liquidity pools.

UNI is the so-called governance token, the holders of which can influence the development of the platform, pay subsidies and enter into partnerships. The UNI token can also be purchased on other cryptocurrency exchanges, including Binance, Bitfinex, Coinbase Pro, Gemini, Huobi and Kucoin. The token soon after it was introduced to the crypto market, was in the top 50 – cryptocurrencies, according to the CoinMarketCap website.

Profitability of Staking on Uniswap

The Uniswap exchange allows investors to earn money by stacking tokens in liquidity pools. As a result, the platform gained a huge number of users who wanted to earn money quickly, most of the funds blocked in DeFi protocols, was deposited there in September 2020. It was a boom period for decentralized finance.

Uniswap - Swap

It is worth knowing that a larger number of participants in an upward trend does not have to be profitable for everyone. A transaction fee of 0.3% is split among all members of the liquidity pool. Investors should also estimate the possible losses that may result from the change in the value of their tokens.

How to Start Trading on Uniswap?

Transaction from the Uniswap exchange is easy and it only takes a few steps to convert cryptocurrencies:

  1. First you need to set up a Metamask wallet and then log in to it.
  2. On the exchange’s website, click Connect to a wallet., And then approve the connection with the exchange. After integrating your wallet with the stock exchange, you can start trading using a simple form.
  3. To do this, select a token from list 1 that will be used to make purchases. Let’s assume that we want to buy a certain amount of DAI cryptocurrency for 1 Ethereum, so in this case we should select ETH from the list. The list includes the tokens that the user has in the integrated wallet.
  4. Then, from the list 2, which contains all the tokens available on the exchange, select the one that will be purchased.
  5. Fields 3 and 4 are used to define the number of items that the user will trade with. You only need to fill in one field as the next one will be completed automatically. For example, when purchasing DAI for 1 ETH, it is enough to enter the value 1 in the field – equivalent to 1 ETH. However, the next field will be completed automatically.

The purchase of a given token is done both at the market price of the liquidity pool, and not directly from another user. Liquidity is provided by other users in the Pool tab. A transaction fee of 0.3% of its value is added to the liquidity.

To complete the purchase, click on Swap and then confirm the transaction that is concluded on the blockchain. However, the coins remain the property of the user until they are resold. After accepting the transaction, the purchased coins go directly to the investor’s wallet and are not stored on the stock exchange.

This solution provides greater security, e.g. in the event of a hacking attack on the platform. In turn, the exchange of the purchased coin for another token is carried out in the same way as the purchase transaction.

Conclusion

The Uniswap exchange is a popular and decentralized cryptocurrency platform. In particular, it is appreciated by Ethereum investors. Decentralization and the ability to manage the development of the stock exchange attract opponents of large cryptocurrency exchanges.

The option to stack your tokens in liquidity pools allows you to earn extra. However, the limitation may be the ability to trade only fiat currencies and tokens that are not based on Ethereum.

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