Interested in Uniswap? You probably need some insight before diving right in. Cryptocurrency is fast developing and seems to be the future of transactions. So, this text should provide the basic information you need to know about Uniswap coin but you should not take it as financial advice.
What is Uniswap coin? Uniswap coin is a transparent and censorship-proof financial infrastructure for Ethereum which enables people to create new markets, provide liquidity and build financial applications that have not existed before.
Uniswap has quickly grown in popularity if you realize that it was only launched in 2018. It is mostly because of the introduction of its $UNI token and the fact that it dropped 400 $UNI to everyone who had used its platform since September 1st.
What You Need to Know About Uniswap Coin
Uniswap is one of the leading decentralized crypto exchanges that run on the Ethereum blockchain. It is similar to Coinbase or Binance but carries some unique advantages. In recent years, decentralized exchanges have overpromised and under-delivered in that they were never really ‘decentralized’ as they claimed to be.
Most of them tried to break into the market such as IDEX, Ether Delta, and Kyber but never really took off. That was until Uniswap took their chance.
If you look at it in a normal sense, Uniswap is a unique crypto exchange. Instead, it resembles a framework that allows people to swap tokens directly from their crypto wallets. There is no custody, no intermediaries and no trust and no KYC needed.
Uniswap achieves this by allowing clients to;
- Swap tokens
- Earn fees through adding liquidity
- Remove liquidity from the pools
In fact, you can look at Uniswap as a P2P market for trading tokens.
So, what is a token? A token is a digital asset based in blockchain that is issues and moved within the specific blockchain. Tokens have value and can be traded against one another on-chain. The ethereum blockchain has more than 230,000 tokens created on top of it.
Uniswap exchanges ERC-20 tokens on Ethereum. It eliminates the need for centralized intermediaries and eliminates unnecessary rent extraction. By doing so it makes trading fast and efficient. Furthermore, instead of using order books for trade, Uniswap is an automated liquidity protocol that involves smart contracts and liquidity pools.
Understanding Uniswap Liquidity Pools
Liquidity is the availability of an asset in the market. Any exchange centralized or decentralized needs liquidity to function optimally. When there’s no liquidity, there’s no way to tell how much an asset is worth and in crypto exchange, token trading would be impossible. So, when creating an exchange, you also need to build a market and provide liquidity for it to function.
With Uniswap, users can exchange ERC20 tokens because Uniswap has an exchange contract that holds a liquidity pool for the token and Ethereum. Liquidity is exchanged for a proportional amount of trading fees accumulated during token swaps.
The exchange rate is determined by the first liquidity provider who joins a pool and they set it by depositing what they believe is a fair value of a token in Ethereum. However, they risk having traders take advantage of any discrepancies in price.
When there are liquidity pools there is no need for an order book on centralized or decentralized exchanges.
How to Use Uniswap
Using Uniswap is a straightforward process but it will require you to have a wallet that can support ERC-20 for example, MetaMask, Coinbase Wallet, WalletConnect, or Portis.
From there, add ether to the wallet to trade Uniswap and pay the Ethereum transaction fees. These fees are also known as “gas payments” and they have varying prices depending on the number of people using that network.
There are often three choices when it comes to making payments over ETH (Ethereum) blockchain
Slow is your cheapest option, followed by the medium which slightly charges more and then fast is the most expensive. These choices determine how fast your transaction will be processed by Ethereum miners.
Here is the process for using Uniswap
- Go to https://uniswap.org
- At the top right corner, click on “Use Uniswap”
- Navigate to “connect wallet” also on the top right corner and choose the type of ERC-20 wallet you own.
- Log into your wallet and let it connect to Uniswap
- Select the option to swap tokens directly through the drop-down options
- Choose the token you want to swap and key in the amount then click on “swap”
- A preview window should appear that lets you confirm the transaction on your wallet
- Wait for your transaction to join the blockchain.
You can check the progress of the transaction by copy-pasting your transaction ID to https://etherscan.io/. Find the transaction in your wallet by checking transaction history under “sent”
Uniswap UNI token
Uniswap has a native token called UNI that was introduced in September 2020 to discourage users from switching to rivals and defecting. It is a governance token that gives a holder voting rights when it comes to new developments and any changes to the platform.
These include any changes to fee structures and the method of distribution of tokens. Uniswap created a billion UNI tokens and distributed 150 million of that amount to anyone who had used the platform by 1 September 2020.
Each user received about 400 UNI tokens which at the time translated to a little over 1000 dollars; the price has gone up since then.
Uniswap growing steadily and its features allow for easier swapping and trading. It will take some time to determine whether they can hold up for years to come. One major challenge to watch out for is the presence of fake coins on the platform.
Uniswap lets anyone create liquidity for ERC tokens so there are scammers who take the opportunity to create fake tokens and hype them up. Since people often jump at the chance to be among the first to be involved with it, some end up losing money. To evade this problem, verify any token contract using Etherscan or CoinGecko.
Also, as always, be responsible with your finances when it comes to any form of cryptocurrency.