Keeping up with new cryptocurrencies and how they are developed is a challenge every single time. When you believe there’s nothing else to research and understand, developers just throw something new to read about and try to get used to.
If you feel identified with this, you can join our group since more are to come in the next few months and years regarding cryptocurrencies.
That being said, Uniswap is one of those platforms and coins that is quite recent, and despite the very few years it has been in the industry, it is quite valuable compared to others that are over five years old.
The reason? How it operates and works.
Considering you are here for your interest in this unicorn cryptocurrency, we will review all the information about it and ensure you can understand the extension of the coin and the network.
To begin with: What Is Uniswap?
If you want to understand what it is, you will need to be familiar with Ethereum, and if you are not, don’t worry; we’ve got your back with another article on our blog you can get access to in the same category.
That being said, Uniswap is a program that uses the Ethereum blockchain to trade ERC20 tokens.
Uniswap is not an exchange that charges trading fees, as most other exchanges are. Instead, it allows members to easily exchange tokens without paying any platform fees or dealing with negotiators.
In addition to this, the platform uses a numerical statement, supplies of ETH, and tokens to accomplish the same task as other DEX platforms that match buyers and dealers.
The burgeoning decentralized finance (DeFi) ecosystem is aiming to use decentralized, non-custodial financial products to replace centralized middlemen in financial applications such as loans, insurance, and derivatives.
What does this have to do with our definition of Uniswap? That is the perfect example of DeFi’s core product related to the decentralized cryptocurrency exchange DEX.
DEX is designed to address many of the same problems as its central counterparts. This includes the risk of hacking and mismanagement. But, decentralized exchanges are not without problems, starting with liquidity.
Following this main problem, Uniswap is a decentralized exchange that aims to solve the liquidity of decentralized exchanges by allowing them to swap tokens without relying on sellers and buyers creating liquidity.
Creator & Background – Uniswap’s Short History
Since UNI is a very recent cryptocurrency, there isn’t much information about its development or how things have turned out great for it over the last few years.
Even its creator, Hayden Adams, didn’t share much information besides being a former Siemens mechanical engineer and made Uniswap a reality on November 2, 2018.
The future of the currency began when it received venture capital from Andreessen Horowitz, Union Square Ventures LLC, and ParaFi.
As a proof of concept for AMMs (Automated Market Makers), the first version (V1) was published in November 2018. Version 2 was released in May 2020, while Version 3 was published in May 2021.
The latter introduced new options for allocating liquidity within a specific price range.
In April 2020, Uniswap’s website was taken down temporarily after hackers unsuccessfully attempted to use a reentrancy hack on the exchange.
By October 2020, the volume of trading of the currency was $220 million and gained popularity among traders due to the use of UNI in decentralized finance.
Operating Uniswap: How It Works
As much as we want it to be simple in terminology and processes, it is a bit hard to explain how a network and currency work without getting technical.
After all, the codes and steps behind the creation and operation are a bit complicated when translated to an explanation.
However, we will do our best to make sure you leave this post understanding how UNI works.
Uniswap runs on two smart and specific contracts: “Exchange” and “Factory” contracts.
These are computer programs that can perform certain functions under specific conditions automatically. The factory contract adds new tokens to the platform, while the exchange contract facilitates token swaps or “trades.”
However, how do this system and platform addresses the main goal of the creation? (Dealing with liquidity?
Uniswap’s automated liquidity protocol is the answer to the question.
The system works by encouraging people to trade on the exchange to become liquidity providers (LPs).
Uniswap users pool money to create a fund that will be used to execute all trades on the platform. Each token has its own pool, which users can contribute to.
The prices of each token are determined using a mathematical algorithm that is run by a computer. This system eliminates the need for sellers or buyers to wait for another party to execute a trade. Instead, they can execute trades instantly at known prices with enough liquidity in the pool.
Uniswap charges a flat 0.30% commission for each trade made on the platform. This fee is automatically sent to a liquidity reserve.
A liquidity provider who decides to exit a pool will receive a percentage of the total fees from the reserve based on their stake in it.
They are then able to destroy the token that they have received, which records their stake.
After the Uniswap V2 upgrade, a new protocol fee was introduced that can be turned on or off via a community vote and essentially sends 0.05% of every 0.30% trading fee to a Uniswap fund to finance future development. Currently, this option is disabled.
However, if it is enabled, LPs will begin receiving 0.25% pool trading fees.
How to Use Uniswap (& For What)
Uniswap is easy to get started. However, you need to ensure that you have an ERC-20-supported wallet setup, such as MetaMask or WalletConnect.
To trade on Uniswap, you will need to add ether and pay gas which is how Ethereum transactions are known.
Prices for gas payments will vary depending on how many people use the network.
ERC-20-compatible wallet services offer three options for making payments over the Ethereum blockchain.
The slowest option is the cheapest, fast is the most costly, and medium is somewhere in the middle, just like you would guess.
It is quite simple to use it when you are introduced to the wallets and system.
Now, remember that Uniswap in specific has the goal of working as a public good or tool for the community so people can trade tokens without dealing with fees or middlemen expenses that also bring certain discomfort in safety.
What About UNI as the Coin?
Don’t think we forgot to explain the currency in specific besides the platform and system in particular.
We are confident many things will finally make sense for you based on the details of this token.
UNI is the native token of Uniswaps, as you can guess by now, and it is also known as a governance token; the beauty is that holders have the right to vote on any new developments or changes to the platform.
This includes how tokens are distributed to developers and the community, as well as changes to fees.
In an attempt to stop users defecting to rival DEX SushiSwap, the UNI token was first created in September 2020 as a new type that allowed users to have governance rights over the protocol and a proportionate amount for all transaction fees.
Uniswap responded to the request by creating 1 billion UNI tokens and dividing and distributing 150 million of them to anyone who had used the platform, allowing each person to receive 400 UNI tokens, which was equal to $1.000 by the time they were provided to the users.
Investing in the Unicorn or Finding a New Method?
Investing in UNI is a great way to take advantage of the cryptocurrency market since it’s not just about investing in the coin itself but also about investing in a decentralized exchange that has many benefits over other options.
The Uniswap platform allows you to trade tokens without dealing with fees or middlemen expenses; this means less work for the user and more time spent on what they want to do.
This all sounds amazing, but there are some drawbacks as well since the currency does not have fiat pairing at the moment, so if you’re looking for that option, then it might not be right for you (yet).
Also, like every currency, you have to deal with how volatile the market is and bet for a coin that can either make you a millionaire or allow you to lose thousands in only a few hours.
It is uncertain how cryptocurrency will behave even when you can, somehow, predict what will happen next.
This is why we invest in it, but not as our main source of income and stream.
Instead, we bet for options like digital real estate since it is a stable opportunity that involves businesses with companies who always need your services.
This business option aims to build websites, rank them on Google, and generate traffic to turn all users into leads for your clients.
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It does require hard work and time to make it profitable, but passive income will be easily achieved, and you can get thousands each month without much effort later on.
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