On Ethereum, the Uniswap protocol is used to swap ERC20 tokens. Uniswap is intended to serve the community as a tool for token trading without platform fees or middlemen, in contrast to most exchanges which are built to take fees. Another distinction between Uniswap and other exchanges is that it performs the same functions using pools of tokens and ETH instead of matching buyers and sellers to set prices and complete deals.
The Ethereum protocol known as Uniswap allows users to swap ERC20 tokens without the requirement for buyers or sellers to generate demand.
The protocol uses smart contracts to enable automated exchanges between cryptocurrency tokens on the Ethereum blockchain. According to daily trading volume estimates as of October 2020, Uniswap was thought to be the largest decentralised exchange and the fourth-largest cryptocurrency exchange overall. In March 2021, Uniswap was earning fees for the liquidity providers, who help to create liquid marketplaces for the cryptocurrencies being traded, of between US$2 to US$3 million each day.
The main token for the Uniswap DEX is Uniswap (UNI) (decentralized exchange). Uniswap currently has the highest market capitalization of any DEX in the whole globe. Additionally, it’s the most widely used Ethereum Dapp on the market. In order to promote innovation and adoption throughout the cryptocurrency market, Uniswap is essential. As a result, this year saw record growth for the platform. According to a recent Dune Analytics research, Uniswap now holds a 63% market share.
In particular, the Uniswap protocol enables trustless and permissionless trading of ERC-20 tokens between buyers and sellers. The most widely used type of token at the moment is ERC-20. They are based on the Ethereum network and are compatible with any wallets, exchanges, and Dapps that follow the ERC-20 standard. Since the development of DeFi (decentralised finance), these coins have experienced a dramatic surge in usage.
The leading DEX in the world, Uniswap, signals a significant market change. DEXs give traders a safer substitute for big, centralised exchanges that run like custodial institutions. These exchanges maintain sizable user bitcoin holdings in in-network wallets. These wallets are popular targets for cybercriminals looking for a hefty payoff. DEXs, in contrast, are not held in custody. They never actually hold any of your money. By doing this, Uniswap inherits the advantages of blockchain and gets rid of the disadvantages associated with centralised platforms.
To address some of the most difficult issues now facing the industry, Uniswap was created. Due to its decentralised structure, it helps to reduce the influence and authority that large exchanges like Binance and Coinbase have amassed. Additionally, Uniswap is essential in giving startup companies access to global liquidity.
Users and the market at large gain greatly from Uniswap. Uniswap gained popularity because of its openness and straightforward user interface. The Uniswap trading window is simple. Due to these properties, transactions may be executed with a single click, and the network as a whole is incredibly adaptable.
There is no restriction on what ERC20 tokens may be listed on Uniswap. Each coin has its own liquidity pool and smart contract, and if one doesn’t already exist, one may be readily established.
Anyone can trade a token or add to the liquidity pool once it has its own exchange smart contract and liquidity pool, earning a 0.3% liquidity provider fee. A liquidity pool requires an equal value of ETH and ERC20 tokens to be added.
A “pool token,” which is also an ERC20 token, is given to the contributor whenever fresh ETH/ERC20 tokens are added to a Uniswap liquidity pool.
As an ERC20 token, pool tokens may be freely swapped, transferred, and utilised in other dapps. Pool tokens are produced anytime money is placed into the pool. The pool tokens are destroyed or burnt when money is returned. Each pool token reflects a user’s portion of the pool’s overall assets and 0.3% trading commission.
UNI is the system’s main token and is used everywhere. The Ethereum ecosystem is compatible with the ERC-20 token UNI. A number of additional well-known exchanges, including a number of top-performing centralised exchanges like Coinbase Pro, already offer UNI for trading.
Recently, Uniswap entered the DeFi market with its Money Market function. Users can utilise this system to put UNI LP tokens as loan collateral. These quick loans have interest that must be paid back. In particular, the lending pools allow liquidity providers to lend out their digital assets in exchange for a portion of this interest.
2016 marks the beginning of Uniswap’s (UNI) history. At that time, Vitalik Buterin, the founder of Ethereum, put out the idea of a decentralised automated market maker. It took just one year for another reputable cryptocurrency developer to take on the project. With some assistance from the ETH community, Hayden Adams was able to make the idea a reality. In particular, he was given a number of awards, including one from the Ethereum Foundation for $100,000.
Uniswap was introduced in November 2018, however it wasn’t until lately that the protocol started to gain substantial momentum.
When Uniswap V2 was released in May 2020, it had a significant update that allowed for direct ERC20 to ERC20 swaps, removing Wrapped Ether (WETH), wherever feasible. Additionally, Uniswap V2 included support for ERC20 tokens that are incompatible with each other, such as OmiseGo (OMG) and Tether (USDT), and made a number of technical enhancements that make it easier to use.
Since many DeFi platforms allow Uniswap liquidity providers to get an additional return on their LP tokens, Uniswap witnessed a similar rise in demand as liquidity mining and yield farming platforms rapidly surged in popularity in 2020.
By total value locked (TVL), a metric of the total value of crypto assets locked up in the platform, Uniswap has risen the ranks to become one of the top DeFi platforms. TVL is a measure of the total value of crypto assets locked up in the platform, and it is distributed as 0.3% exchange fees to liquidity providers and the platform’s popularity as a launchpad for popular DeFi project tokens.
Uniswap V3 was released in May 2021, and the most recent version of the DEX has a lot of additional capabilities. Consolidated liquidity is the first type, which enables liquidity providers to distribute liquidity within a specific price range. That therefore implies that traders don’t need to risk as much money to see returns.