Uniswap is a decentralized exchange (DEX) that is gaining popularity day by day. The platform works on the Ethereum blockchain, the 2nd biggest cryptocurrency program in terms of market capitalization. Uniswap is designed to function as a public good, meaning it acts like a tool for the community to trade tokens without any middlemen or public fees. Uniswap uses a simple mathematical equation, tokens and ETH that match buyers & sellers to determine prices and execute trades. These two features are kind of unique when compared to most other exchanges.
Being an open-source software, Uniswap offers the latest technology and solutions within the DeFi framework. There is no listing process in the Uniswap protocol and users can seamlessly swap between ERC-20 tokens without the need for an order book. The governance token for this DEX network? The currency UNI.
Table of Contents
- The History of Uniswap
- The Technical Specifications of Uniswap
- The Price of Uniswap
- Unique Aspects of Uniswap
- Why Use Uniswap?
- Resources of Uniswap
The story of Uniswap began on the 6th of July 2017 when Hayden Adams, a junior mechanical engineer, was fired from Siemens. In November 2017, Adams designed a proof-of-concept including a smart contract and a website. That contract contained a single liquidity provider and allowed a simple swap. That was when the confidential, yet very basic, version of Uniswap had been born. Naturally, the smart contract code had some gross errors which were resolved in January 2018 by Adams.
At that point, the possibility to provide the required liquidity by multiple users came into the picture along with the opportunity to create a new trading pair. An additional function allowed two separate pairs to be exchanged immediately using the ETH currency as an intermediary.
In April 2018, Adams met the founder of Ethereum Vitalik Buterin who suggested Adams to rewrite his smart contract code in Vyper and apply for funding from the Ethereum Foundation. Before applying for the funding, Adams finalized the smart contract, created a responsive & user-friendly interface, arranged an audit to test the security of the smart contract, finished the white paper and created the developer docs.
In July 2018, Ethereum Foundation granted Adams 50,000 USD. It was also decided to launch the first version of Uniswap open to the public at Devcon 4. Finally, on the last day of Devcon 4 dated November 02 2018, smart contracts were deployed on Ethereum. Around 30,000 USD was sent to 3 different tokens, allowing for swaps of about $100.
It took time to gain popularity. The project got a significant boost in July 2020 when the DEX completed more than $1 billion in transactions. Later it hit $10 billion in August and $20 billion in September. Surprisingly, in January 2021 it surpassed $30 billion.
|Date of Release||November 02, 2018|
|Consensus mechanism||Version of PoS called proof-of-staked-authority (PoSA)|
|Average Block Time||64 days, 2 hours and 11 minutes|
|Mining reward||0.5 FNX per day when staking one UNI-V2 token|
|Next Block Halving||N/A|
|Smart Contracts||Binary smart contract system|
One of the most unique aspects of Uniswap is the use of a pricing mechanism called the “Constant Product Market Maker Model”. Users can add any token to Uniswap by funding it with an equal value of ETH and the ERC20 token.
Let’s take an example. If you want to make an exchange for X token, you need to do two things:
- Launch a new Uniswap smart contract for X token
- Create a liquidity pool i.e. 100 USD worth of X token and 100 USD worth of ETH.
Instead of connecting buyers and sellers to determine the price of X token, Uniswap uses a constant equation: x*y=k, where k is a constant value; x and y indicate the quantity of ETH and ERC20 tokens available in a liquidity pool. Hence, a balance between ETH and ERC20 token has always been maintained in order to determine the price of a particular token. When a user buys X token with ETH, the supply of ETH increases and X token supply decreases—keeping the token price higher.
The swap feature is extremely convenient with just a few clicks without the need for registering to an exchange account. Users will get high returns in the form of interest for providing liquidity. The governance token that fuels the network is also called UNISWAP (UNI). A governance token means that holders can vote regarding how the network is run. As the platform grows, so will the importance of the token itself.
Uniswap doesn’t hold funds in custody: The Ethereum-based smart contracts control and monitor users’ funds entirely. Trading pairs are handled through separate contracts produced by Uniswap. The system is devoid of any central body to seize funds. No identification is required for account creation.
Liquidity providers: Users can gain profits by simply staking UNI in Uniswap liquidity pools. LPs usually provide capital to any specific pool after submission of a mandatory collateral to each of their targeted markets. Users get ‘liquidity tokens’ after providing the liquidity. The exchange charges a fee of up to 0.3% for every transaction.
UNI withdrawal fees: Withdrawal fees are very common in the crypto market as almost every exchange takes it. Uniswap is completely different in this regard. It charges only the normal network fee that follow the execution of a transaction. The withdrawal fee is usually 0.000812BTC per withdrawal based on the “Global Industry BTC”. Uniswap takes only 15-20% on average BTC withdrawal fee. This is undoubtedly a good bargain that increases the popularity of this exchange.
Community driven: Uniswap focuses on community-led growth, development, and self-sustainability. With the inception of the UNI token, 60% was allocated to the community. UNI holders can participate, vote and decide over future plans for the platform.
State of security: Uniswap’s network servers are spread out to different locations. This approach protects the servers from cyberattacks. Even if attackers succeed to breach one server, the exchange will keep running without any glitch. Another notable point, Uniswap doesn’t touch any of your assets—in fact, these are not held on the platform. So, your assets will remain safe even if the entire network server is compromised.
Considering the growth from July 2020 to January 2021, Uniswap’s future looks promising. As a popular exchange, the platform provides convenience to Ethereum investors with an appealing liquidity pool. As the V3 of Uniswap goes live, the UNI token will be more likely to prosper in its wake.