Uniswap is a decentralized exchange (DEX) running on the Ethereum (ETH) blockchain.
By utilizing Uniswap, users can exchange ERC-20 tokens without entrusting a third party with their funds - affording the userbase ultimate control over their digital financial assets.
However, despite the many advantages afforded to users, there are still some things you need to watch out for to ensure you have the safest experience swapping assets while taking advantage of everything a DEX like Uniswap has to offer!
Advantages of Using a Decentralized Exchange
Uniswap (UNI) is self-custodial, which means you retain full custody of your assets. Unlike a centralized exchange (CEX), you don’t have to worry about losing your funds if the platform falls victim to a hacker or goes bankrupt.
Because Uniswap is self-custodial, you aren’t required to give up your anonymity or any personal details. One of the most prominent drawbacks to using a CEX is going through the Know Your Customer (KYC) process.
This procedure requires you to disclose sensitive personal details to them. Often, they will even request a copy of your photo ID, driver’s license, or passport.
Since Uniswap is decentralized and requires no vetting process of any kind, many projects decide to launch their token on the platform before listing them on a CEX. Arguably, this early/exclusive access to new projects and their native token(s) is what makes Uniswap the most popular DEX among cryptocurrency traders and investors.
Disadvantages & Potential Security Risks
One of the biggest perils of using Uniswap is that ANYONE can list their coin/token, which means bad actors create fake listings in an attempt to find victims who will send them funds before attempting a rug pull.
Users should always double-check the token contract address they are trading for/sending money to by verifying it on an Ethereum-based blockchain explorer, such as Etherscan.
Luckily, the second disadvantage of using Uniswap is not a security risk! Transaction failures can sometimes occur – usually due to either the gas fee limits or slippage settings being too low or insufficient liquidity in the pool.
Generally, your transaction (tx) will be reverted, which is equivalent to having the tx reset, as if it never even occurred. In most cases, tx failures will not cause you to lose any funds.
Safety In the Hands of the User
Uniswap affords its users the ability to retain personal details and identity at the cost of allowing anyone to use the platform, so to claim UNI is any more unsafe than a traditional CEX would irrefutably untrue.
Disclaimer: Using a DEX ultimately places the full responsibility of the users’ safety in their own hands - for better or worse. With this in mind, users should be cautious before using Uniswap or any other DEX to trade for tokens without first ensuring they have done their due diligence and necessary research.