Amidst the rising popularity of decentralized finance (DeFi), Uniswap (UNI) is definitely among those occupying the center stage. Following the peak in 2017 after substantially rapid price appreciation, initial coin offerings (ICOs) saw their doomsday, while centralized exchanges (CEXs) substantially raised the bar to entry.
These custodial exchanges stood contrary to the foundational principles of the blockchain-cryptocurrency community. As budding crypto-projects looked for platforms to launch and trade their tokens, Uniswap burst into the scene.
Being permissionless, it became a haven for such projects, but maintaining liquidity emerged as a problem – to counter this, UNI introduced liquidity mining, which enabled users to generate passive income from their crypto-holdings.
Over time, the methods of earning passive returns have diversified manifolds. For instance, the massive gains of yield farmers have consistently made headlines. Apart from these factors, the popularity of the UNI token is also because of its non-custodial design.
What Is Uniswap?
Founded by Hayden Adams in 2018, Uniswap is an Ethereum (ETH) based decentralized exchange (DEX), all accomplished by leveraging an automated market maker (AMM) protocol.
Simply put, AMMs simplify the end user’s trading experience. Unlike a CEX, Uniswap doesn’t have any complicated order book, like the traditional centralized counterpart to the DEX or even traditional investment markets. Instead, the way you would go to perform a trade is by pulling up the Uniswap DEX, connecting a mobile wallet, and then you can simply ‘Swap’ one asset for another.
The AMM mathematically determines the trading price of listed assets, and this means that price gets automatically calculated, and the market remains immune to manipulation. If you don’t trust this claim, you can verify the details listed above from this article explaining how Uniswap is open-source — anyone can check its code or use it to build a custom DEX of their own.
Liquidity pools represent another crucial aspect of the exchange. Simply put, liquidity pools are smart contracts holding proportional amounts of asset pairs. Each pool on Uniswap is a market for the associated pairing of assets, say ETH-BTC. While trading on Uniswap, you’ll deposit liquidity at one end of the pair and withdraw from another.
Liquidity providers (LPs) contribute to both ends of the pair, and with the launch of UNI-V2, they get 0.3% of every trading fee paid out in proportion to their share of the liquidity pool as an incentive. Of course, anyone can become an LP on Uniswap, given that you have enough assets.
How To Use Uniswap?
Using Uniswap is super easy, especially if you follow this guide.
There are five simple steps one can follow to gain a fundamentally sound understanding of the UNI token. But first, let us figure out where we need to go to make our first purchase!
And if you are ever unsure/having doubts about a project, remember it is likely a wise bet to own a little, rather than none at all.
- Step 1: Open the Uniswap interface. Make sure you’re on the latest version, presently UNI-V2.
- Step 2: Click on the ‘Connect to a Wallet’ button to connect your ERC20 wallet. Presently, Uniswap supports MetaMask, WalletConnect, Coinbase Wallet, Fortmatic, and Portis.
- Step 3: Click on the dropdown menus to select the tokens you would like to swap and enter the amounts. By default, the base token is ETH.
- Step 4: Click on the ‘Swap’ button to initiate the transaction.
- Step 5: Using your connected wallet, preview and confirm the transaction. Apart from your desired amount of tokens, you’ll have to pay a minimal fee for the gas.
You can verify the status of your transaction using Etherscan’s block explorer.
UNI Tokens: What Do They Do?
The UNI is primarily a governance token. By owning UNI, you get voting rights for proposed modifications on Uniswap. These include crucial matters, such as fee structure, token distribution, protocol upgrades, and so on.
A total supply of 1 billion UNI saw issuance on September 1, 2020. Out of these, 150 million promptly flooded into circulation through an airdrop – it was a great success.
Additionally, Uniswap offered 400 UNI to each user who used the platform before the token’s launch. Within the first 24 hours, a whopping 66 million UNIs ended up being claimed by users. Presently, UNI tokens remain available on several leading exchanges, both centralized platforms and their decentralized counterparts.
The development of an improved, more robust Uniswap version 3.0 is already underway, while the Ethereum Foundation developers have reported to be dedicatedly working on an enhanced scalability solution.
And finally, following up with more bullish news related to DeFi, Uniswap has become the first-ever DEX to record over $100 billion in daily trading volume.