Uniswap is a decentralized cryptocurrency exchange platform built on the Ethereum blockchain. Most cryptocurrency transactions occur on centralized exchanges such as Binance and Coinbase. These exchanges are managed by a company (exchange operator). Users must place funds under their control and use traditional order books to facilitate transactions.
Order-based transactions are bought and sell orders that list the total amount of each order. Market depth refers to the number of outstanding buy or sell orders for an asset. In order for the transaction to succeed, the buy order must match the sell order of the same quantity and price.
What is Uniswap?
Uniswap is a decentralized exchange protocol dependent on Ethereum. This is an automated liquid protocol. No order book is required for trading. Uniswap enables transactions without intermediaries. He also showed resistance to the censorship system.
Uniswap is open-source software. You can verify this yourself on Uniswap GitHub. But how to trade without an order book? Uniswap uses liquidity providers to create a model of liquidity pools. This decentralized pricing system promotes the depth of the order book. We will understand in more detail how it works. It should be noted that users can easily switch between ERC-20 tokens and tokens without opening the order book.
Uniswap does not have a listing process because it is decentralized. As long as traders have liquidity, ERC-20 tokens can be launched. Uniswap also does not charge listing fees. To some extent, the Uniswap protocol acts as a public good.
Hayden Adams created the Uniswap agreement in 2018. Ethereum co-founder Vitalik Yetterin was the one who created it, and he was the first to describe the technology that inspired its implementation.
How does Uniswap work?
Uniswap can be used for two smart contracts, “Exchange” and “Factory”. These are computer programs that perform specific functions under specific conditions. Factory smart contracts add tokens to the platform, and exchange contracts facilitate token exchanges or “transactions.” All ERC20-based tokens can be exchanged on the updated Uniswap v.2.
Uniswap’s automated liquidity protocol is how it solves liquidity issues (described in the introduction). This is achieved by encouraging people to trade on exchanges to become liquidity providers (LP). Uniswap users pool funds to create funds used to execute all transactions on the platform. Each icon has its own collection, and users can contribute to it. The price of each token is determined using a mathematical algorithm operated by a computer.
The system can execute transactions without waiting for the counterparty to arrive. If there is sufficient liquidity in the pool, they can immediately execute any transaction at a known price.
Tokens are tokens that represent the embolic contribution of each LP in exchange for funds. If you contribute 10,000 USD to the liquidity pool for a total of 100,000 USD, you will receive a token. This token can also be used to obtain part of the transaction fee. Uniswap charges a fixed fee of 0.30% for each transaction conducted through the platform. It will automatically transfer it to the liquidity reserve.
When the liquidity provider decides to leave, he will receive a portion of the total cost. This is directly proportional to the amount of them deposited in the pond. The tokens they received tracking the amount owed to them have been destroyed.
A new protocol fee has been introduced, which can be turned on or off through community voting. It sends 0.05% of every 0.30% transaction fee to Uniswap Fund to fund future development. Currently, this fee option is disabled. However, if triggered, the liquidity provider can start charging 0.25% of the pool transaction fee.
How does Uniswap Make Money?
Uniswap is a blockchain-based protocol supported by the crypto hedge fund Paradigm. All fees are paid by the liquidity provider. The founders will not get any income from transactions that occur through the agreement.
Currently, the transaction fee paid to liquidity providers is 0.3% per transaction. They are automatically added to the liquidity pool. But the liquidity provider can always get it back. The fee is calculated based on the percentage of each liquidity provider in the pool.
Part of the cost may be used for the development of Uniswap in the future. The Uniswap team has implemented an improved version called Uniswap v2.
Uniswap’s UNI token
UNI is the original logo of Uniswap and is considered a symbol of governance. This allows its owners to vote on any developments and changes to the platform. They can also vote on how tokens will be distributed to developers and community members and any fee changes. The UNI token was originally created in September 2020 to protect users from turning to DEX competitors. Exchange sushi. A fork of SushiSwap Uniswap incentivizes Uniswap users so that SushiSwap can reallocate funds to the new platform. One month before the launch of UNI tokens, they received SUSHI token rewards. This new token allows users to obtain governance rights and pay part of the transaction fees to the platform.
Uniswap responded with 1 billion UNI tokens. They decided to donate 150 million to everyone who uses the platform. Each user receives 400 UNI tokens. The value of these tokens exceeds $1,000.