December 30, 2020

Ethereum based Uniswap Decentralized Protocol Review

Posted By Alwin | 322 Views

Uniswap is a decentralized cryptocurrency exchange which can make automated transactions between cryptocurrency tokens on the Ethereum blockchain with the help of smart contracts. Uniswap allows buyers and sellers to swap ERC20 tokens. According to Bloomberg News, Uniswap is estimated to be the largest decentralized exchange and the fourth-largest cryptocurrency exchange overall by daily trading volume. Uniswap is an Ethereum based exchange that allows for decentralized token swaps. It works with the help of unicorns. Many developers have been thinking about unique ways to build a decentralized exchange. The way Uniswap works may be more difficult to understand than a more traditional DEX. It uses a simple math equation and pools of tokens and ETH to do the same job.

Invention and Importance of Uniswap

The Uniswap protocol was produced by Hayden Adams in 2018. Also the underlying technology that inspired its implementation was first described by Ethereum co-founder, Vitalik Buterin. It is an automated liquidity protocol. It differs from other decentralized exchanges by the use of a pricing mechanism called the “Constant Product Market Maker Model.”

Uniswap works with a model that involves liquidity providers to create liquidity pools. Any token can be added to it by funding with a value of ETH and the ERC20 token. Any ERC20 token can be listed on Uniswap and also no permission required. Each token has its own smart contract and liquidity pool, so that anyone can trade the token or contribute to the liquidity pool.

How it works

The contributor receives a pool token whenever new tokens are contributed to a Uniswap liquidity pool. Pool tokens are established whenever funds are deposited into the pool as an ERC20 token. This can be freely exchanged, moved, and used in other dapps. It works with Automated Market Maker(AMM), which is a model of the variant called Constant Product Market Maker. AMM are smart contracts that hold liquidity reserves that traders can trade against. The reserves are usually funded by liquidity providers.Liquidity providers can create a market by depositing an equivalent value of two tokens. These can either be ETH and ERC20 or both ERC20 tokens.

How to use Uniswap

Uniswap is an open-source protocol by which anyone can create their own frontend application.

  1. 1. Go to the Uniswap interface
  2. 2. Connect your wallet. You can use any Ethereum supported wallet
  3. 3. Select the token you would like to exchange from
  4. 4. Select the token you would like to exchange to
  5. 5. Click on swap
  6. 6. Preview the transaction in the pop-up
  7. 7. Wait for the transaction to be confirmed on the Ethereum blockchain.

UNI token launch

In September 2020, Uniswap UNI was launched, as a network’s governance token. UNI can be the native token of the Uniswap protocol. Uniswap’s token launch can be considered as a response to the rise of Sushiswap, which is the clone of the protocol that added a token to encourage usage.

The UNI token was initially surged from a price of $1 to a peak of over $7, before dropping off by 30% to around $5. The amount of Ethereum locked in Uniswap will be surged, shooting up to $1.6 billion in the first two days following the UNI token launch and $1.9 billion by the seven-day mark.

UNI will be distributed among those who provide liquidity to the following Uniswap pools:





Closing Thoughts

Uniswap is an innovative exchange protocol which is built on Ethereum. It can allow anyone with an Ethereum wallet to exchange tokens without the involvement of any central party. Uniswap can be rapidly changing DeFi space with the launch of its governance token. This was proved. One of the biggest developments for the DeFi project has come with the launch of Uniswap V2, which meant that ETH will no longer need to be one of the two assets in a liquidity pool. An upgrade of V3 is currently in the works.

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