- Uniswap is categorized as one of the biggest decentralized cryptocurrency trading protocols with applaudable features. Although its setup does not permit the buying and selling of digital currencies, users can efficiently push through with token swaps without the need to create an account.
- In 2021, the protocol’s newest protocol for governance smart contracts, Uniswap V3, was released putting the company at the top of other popular automated market maker-based protocols and maintaining relevance.
Uniswap of Uniswap Labs is a decentralized-based exchange built by a developer named Hayden Adams on the 2nd of November 2018. In 2020, the staking and swapping solutions were upgraded to version 2 to support the interchange between ERC-20 tokens on the Ethereum chain. Its version 3 upgrade was announced in May 2021. Changes and upgrades carried out on the protocol are often agreed upon when investors who hold the native UNI token participate in voting exercises. The UNI token had originally been allocated amongst the earliest users of the exchange. Prior to September 1st 2020, all Ethereum addresses associated with Uniswap were entitled to 400 UNI token claims which are currently valued at $1,400.
The protocol was ranked the fourth biggest by daily exchange flows in October 2020. Estimates made in February 2022 placed the market capitalization of the protocol’s native token UNI at $6.6 billion.
Some of the company’s investors include crypto-based ParaFi Capital, VC company Paradigm, New York-based capital market firm Union Square Ventures, and Andreessen Horowitz.
The UNI token
UNI is the native token of the Uniswap ecosystem which was launched in September 2020. Having shown dedication and support for decentralization, Uniswap made a move to launch its native token to improve community participation and management. The token utilized an “airdrop” pattern of allocation, awarding all Uniswap-associated Ethereum wallets with 400 UNI tokens. So far, airdrop has been used as a means of compensating users and investors.
Uniswap Pros and Cons Explained
- Exposure to newer tokens: Before coins and tokens can be listed on exchanges, they must undergo a rigorous vetting process in order to minimize the risk of investing in dubious tokens. This means investors will have access to tokens that are still in the rollout phase.
- However, the case is different with Uniswap. Coins and tokens are not subjected to lengthy vetting and new projects can be listed directly on Uniswap. This way, investors can swap to newer tokens even before they are listed on centralized exchanges.
- KYC is not required: Uniswap is a decentralized protocol and does not require its users to comply with Know Your Customer (KYC) verification to access its services. Because users do not have to go through lengthy verification, onboarding on Uniswap is much easier. This also promotes anonymity.
- Opportunity to earn rewards: Uniswap V3 gives users the opportunity to provide liquidity to its concentrated liquidity pools and adequate rewards in return. Due to its flexibility and efficiency which allows for multiple tier fees, Uniswp V3 has some competitive sides over V2. The liquidity pools are what facilitate trades, enabling users to convert one or more tokens for another.
- Uniswap is communo-centric: Uniswap is one of the most unique protocols because it focuses on its community governance system, giving UNI token holders an opportunity to vote on public proposals in a system that is relatively non-complex. All changes to the Uniswap protocol are mostly done on-chain. This enhances immunity as all upgrades made can never change.
Uniswap Cons Explained
- Safety risks: With Uniswap, the vetting period for new coins and tokens are not lengthy, paving a way for scam tokens to make it to the exchange. This poses a serious risk for investors who may likely swap their tokens for fake ones.
- Fiat currency cannot be moved on or off the protocol: Because Uniswap is decentralized, fiats cannot be moved on or off the platform. The only platforms that support the movement of fiats are centralized exchanges.
- Extremely high gas fees: Uniswap runs on the Ethereum network, and this means transaction costs are highly dependent on gas fees. Higher cost of transactions, especially when the network is congested, can be a turn-off for users.
- Technical difficulty: Interacting with decentralized exchanges such as Uniswap can be extremely technical, making them a turn-off for new and intermediate investors. In addition, tracking liquidity provision on decentralized exchanges is technically tricky and may require the use of third-party data analytics tools.
Features of Uniswap
Uniswap has some features that are ear-catchy to investors. These features include:
- Token swap: Uniswap’s swap feature allows for ERC-20 tokens to be exchanged among themselves using Ethereum gas fees. The UNI native token can also be purchased on the platform.
- Collective governance: Uniswap’s governance policy allows for collective control and decision-making. No singular entity has power over another.
- Liquidity pools: Uniswap V3 has concentrated liquidity pools where users who plan to earn passively can add liquidity and earn rewards.
- Self-custody: Unlike centralized exchanges where users transfer the custody of their private keys to a platform, Uniswap is non-custodial, giving users total control of their private keys. This ensures the users remain protected if a hack or bankruptcy occurs.
- Access to various tokens: Uniswap is home to both new and existing tokens, giving investors access to diverse coins to choose from.
How Secure is Uniswap?
Uniswap trading platform is highly secure and safe. It is a decentralized exchange with its liquidity reserve set up on Ethereum. Its decentralized features keep it away from third-party interference, which makes it less susceptible to hacks targeted at a central regulatory server. All tokens offered to the trading platform’s liquidity reserves are sealed by a crypto contract and designed free from alterations. Hackers may need details of your account to flexibly access tokens in the reserve.
The major possible risk that you can face when utilizing Uniswap trade is the risk related to user mistakes. This is because all crypto contracts and codes have been run through critical examinations and are confirmed to be safe.
Nonetheless, tokens offered to the liquidity reserves are at risk of being lost on Uniswap, as it is with diverse liquidity reserve exchanges.
Assets Available on Uniswap
There are over a billion assets that can be traded on Uniswap effortlessly, as it is compatible with Ethereum-based assets. Here is a list of some of the well-known coins that can be purchased on Uniswap:
- Ethereum (ETH)
- Ethereum-based Basic Attention Token (BAT)
- Native token Uniswap (UNI)
- Tether (USDT)
- Wrapped Bitcoin (WBTC)
- Dollar-pegged DAI (DAI)
- Chainlink (LINK)
- Wrapped Ethereum (WETH)
How to Efficiently Utilize Uniswap
The process involved in using Uniswap is quite clear and easy to understand. First, an Ethereum wallet like Portis, Metamask or Coinbase is required alongside a tiny portion of ETH to cover the charges of gas needed. Thereafter, you can access the Uniswap official website through the browser set up on your preferred wallet and commence swapping.
Cost of Transactions on Uniswap
The protocol only requires 0.3% charge for token switch activities, and contrary to how it operates in a third-party supported protocol, these charges are not taken by Uniswap. The realized funds are used to compensate liquidity providers as the fee for their contribution.
Customers who need to explore a protocol that offers a variety of token choices, reserves, and a comparable low trading cost -intensified in its V3- may consider Uniswap a more flexible option. Of course, there seem to be a few vulnerabilities attached to some of its flexibility but this does not seem to count much given its high ranking amongst other exchanges.
With that stated, it is necessary to underline that only Ethereum-supported tokens can work with the existing version of Uniswap.
Given the global limitations that tend to hinder certain protocols in the digital space, it is commendable that Uniswap has continued to be on top of the game. The decentralized protocol has gained its stand in offering premium decentralized services to users. Nonetheless, its development does not stop at this stage as creators are committed to building on the enhancement of customers’ experience.
Frequently Asked Questions (FAQs)
How do investors earn passively on Uniswap?
There are several ways investors earn passively on Uniswap and they include liquidity provision, yield farming, and airdrops.
Is Uniswap the best place for investors?
Uniswap is ideal for experienced and tech-savvy investors who want to make extra income. The wide range of assets the platform supports and the concentrated liquidity pools make it a top choice for crypto investors.
Does Uniswap require KYC?
Uniswap is a decentralized protocol and does not require users to