Most cryptocurrency exchanges today are centralized and regulated by government commissions and legal regulations. Obligate clients to undergo KYC and KYT procedures. Against this background, there was a demand for the services of DEX – decentralized exchanges, among which Uniswap has become one of the best platforms.
Users of the Uniswap platform are followers of the new crypto direction DeFi. Maintenance is automatic without interruptions. The processes are controlled by smart contracts of the Ethereum network in the app application.
The history of the Uniswap exchange
Hayden Adams is an engineer and developer of the Uniswap exchange protocol. He was inspired by V. Buterin’s idea of creating an on-chain market maker – with exchange operations inside the Ethereum blockchain. The Ethereum Foundation allocated 100 thousand USD for work, and a team of fewer than 10 people created and launched the DEX platform, which became one of the most successful startups in 2020.
The first version of the Uniswap V1 service was launched on November 2, 2018, and served transactions only in tandem with Ethereum.
In May 2020, the second version of Uniswap V2 was launched, where arbitrary pairs of ERC-20 standard tokens became available. An intermediate transaction via ETH was no longer required, which simplified exchange operations and reduced total fees.
With the launch of the exchange Uniswap V2, the turnover of the cryptocurrency exchange is growing. In August 2020, it doubled and surpassed that of Coinbase. A month later, it added another 50%, reaching $ 1 billion. Such popularity makes it possible to predict the further successful development of the project.
The registration process for the exchange
Registration and verification are not required on Uniswap. It is enough to connect an Ethereum wallet or an ERC-20 token and start exchange operations.
Procedure:
- Open the uniswap.org website. Click one of the application launch buttons;
- A wallet connection form will open, in default ETH is set;
- You can select another token, and a list of available wallets for this coin will appear;
- For example, choose Ethereum. The system will display a list of available services for ETH addresses. The next step is to click on the Connect to the wallet;
- Choose one of the offered services.
Now it remains to determine the second exchange token, enter the amount, and confirm the operation.
Trading on Uniswap
Cryptocurrency on the Uniswap exchange is traded through an exchange in a special window. The higher the liquidity pool of a trading pair, the lower the risk of slippage.
There are no classic orders on the exchange. Transactions are carried out automatically. Liquidity is provided by liquidity providers. When exchanging for Uniswap, the transaction will need to be confirmed in the wallet.
The commission for transactions on the exchange has a flat rate of 0.3% per transaction.
Uniswap features
On the Uniswap cryptocurrency exchange, in addition to trading, the function of deposits in liquidity pools is implemented. Any user can become a liquidity provider. Liquidity providers can invest in any pool in an equal amount for the selected pair (for example, ETH / USDT).
Investors receive an internal exchange liquidity token. To fix the result and withdraw funds, it is enough to redeem the invested tokens. The commission for depositing and withdrawing funds from the liquidity pool is 0.25%.
For each transaction in the pool, providers receive a reward of 0.3% of the transaction amount. The reward is divided among all providers in proportion to their share in the pool.
On Uniswap, community management is implemented for UNI token holders. Users can vote for changes on the exchange and new developments, for the way new tokens are distributed in the community, and for changes in the commission.
Depositing and withdrawal of funds
Ethereum or another ECR-20 token can be bought through a cryptocurrency exchange. After adding digital money to a wallet, it will immediately become available on Uniswap (if the wallet is connected to a cryptocurrency exchange). There are many ECR-20 tokens listed on Binance. In exchangers, as a rule, only major cryptocurrencies are available.
Third Uniswap Protocol
Uniswap announced the launch of the third version of the protocol on May 5, 2021. The developers of the exchange have promised to implement a second-level solution Optimism to solve the problem of scaling. Also, in the third version of Uniswap, there will be concentrated liquidity positions.
The feature will allow a market participant to provide liquidity for Ethereum only when ETH is trading in a specific price range (for example, $ 1500 to $ 1800).
The Uniswap v3 exchange will have a three-tier liquidity provider commission structure of 0.05%, 0.30%, and 1%. User transaction fees will decrease. It is also possible that LPs will generate more commissions from pools with high volatility coins.
Conclusion
Uniswap operates on the Ethereum network, so it currently has higher fees than decentralized exchanges on the Binance Smart Chain (BSC) blockchain. The situation with fees may change after the full launch of Ethereum 2.0. Transaction overhead can also be reduced by running the third version of the protocol. Reduced fees will increase the competitiveness of Uniswap, in particular against PancakeSwap, which runs on the Binance Smart Chain blockchain.
