With the growing popularity of the DeFi market and the desire to shift away from systems with accountable representatives in project operations, a huge number of platforms in the second category emerged. One of them, Uniswap, has gained particular notoriety.  In this article, we will tell you what the features of this platform are.

What is Uniswap?

Uniswap is an exchange protocol for a decentralized Ethereum-based exchange, and more specifically, it is a liquidity automation protocol. To conduct trades, the exchange does not require an order book or any other centrally maintained party. Uniswap allows users to trade directly between participants without the use of intermediaries, thus preserving higher decentralization and resistance to censorship. Users can supply liquidity to pools on Uniswap by depositing an equal amount of reference tokens in return for tokens from the pool. Anyone can do it, and it does not require registration, your identity card, or any other factors that are often required for exchanges.

Who created Uniswap and when?

As a programmer, Hayden Adams developed the Uniswap protocol. He quit his job at Siemens on July 6, 2017, where he had worked as a mechanical engineer after college. Adams’ buddy Carl Flersch, an Ethereum Foundation contributor, encouraged Adams to become a smart-contract specialist. He spent the next two months learning and mastering the basics of Ethereum, Solidity, and JavaScript, and then Carl prompted Adams to create an automated market maker engine (AMM). 

In August 2018, Adams received a $100,000 grant from the Ethereum Foundation to bring this idea to fruition. Assisting Adams in the Uniswap creation process were Microsoft and Google employee Callil Capuozzo, programmers Uchiel Vilchis, Philip Dayan, Dan Robinson, Andy Milenius, and others. Closer to March 2018, developers introduced a demo version of Uniswap. And already on November 2, 2018, the full version of the program appeared.

How does Uniswap work?

Despite centralized exchanges, Uniswap lacks an exchange ledger, which is used by typical trading platforms to compute supply and demand levels for specific assets, as well as to choose and link buyers and sellers. This initiative, on the other hand, employs an automated ordering mechanism based on smart contracts. With these smart contracts, all users on the Ethereum blockchain can trade directly with one another. It is, in theory, a decentralized exchange (DEX). Uniswap uses two types of smart contracts: Exchange and Factory. Users can exchange tokens and Ethereum via exchanges that manage pools of tokens and Ethereum. Factory contracts are responsible for the formation of new exchange contracts in the system. In addition, contracts allow users to attach an ERC20 token to an individual exchange contract.

From a technical standpoint, we can say that the Uniswap system combines tokens of the same type in so-called Uniswap liquidity pools. They are coin reserves depicted in the form of accumulation cells. They are essential in order for Uniswap users to always be able to trade one coin for another. The amount of assets that the trader must take from the “reservoir” during deals. Of course, the transaction is carried out via smart contracts. Traders can swap cryptocurrencies directly from one another thanks to this scheme of work, which eliminates the need for intermediaries.

Pros and cons of Uniswap

There are many advantages to this exchange. One of them is that it does not require KYC. In other words, Uniswap users do not need to confirm their identity. No matter how huge the trading volume or activity on the platform is, there is no need to show documents. Neither is there any registration. You don’t have to create an account, enter your email or specify a password. In addition, the exchange has a very wide selection of tokens and a simple interface. 

On the other hand, Uniswap is far from being perfect – it also has weaknesses that are impossible not to note. For example, swaps are sometimes too expensive and require a serious strategy to invest. Given the high fees for swaps, you have to think carefully about tokens and how much you plan to invest in them. Another disadvantage of this exchange is the abundance of scammers. Because you can add any token to Uniswap, it is also widely used to create coins with the same ticker. In addition, the platform is not suitable for large purchases and has quite large fees.

Uniswap token

UNI is a token (cryptocurrency) that applies to the Uniswap network. A UNI token holder can automatically participate in community voting in case of important decisions related to the platform. In other words, UNI coin owners have the right to take part in voting, and their opinion will be counted whenever any changes to the network are made.

However, while this decentralized exchange has its advantages and disadvantages, the steady growth in trading volumes of the platform indicates that its advantages outweigh. Also, the most important thing to consider is that UNI tokens are very volatile, and investing in them can be profitable. Always be vigilant and you will definitely succeed.