If you’re planning to get more involved in the crypto world, then you need to know all the available resources that would help you excel. In the crypto space, those who want to purchase a crypto often do so by using an exchange. However, these cryptocurrency exchanges have become centralized and this defeats the entire concept of decentralization that Satoshi Nakamoto introduced with the creation of Bitcoin.
Decentralized exchanges emerged in a bid to solve the problem of centralization and other issues such as the risk of hacking, arbitrary fees and mismanagement. But decentralized exchanges also have their issues and the major one has to do with liquidity. What liquidity means is not having the amount of money in an exchange that would make trading more efficient and faster.
Uniswap was launched to resolve this major issue that has affected decentralized exchanges. The platform allows traders to swap tokens without depending on buyers and sellers to help create the required liquidity.
Let’s take a deeper look at Uniswap.
The project was created by Hayden Adams, who was actually inspired by a post that was made by Ethereum founder Vitalik Buterin. It’s a protocol on Ethereum that was primarily created for swapping ERC-20 tokens. The Uniswap exchange wasn’t designed to take fees just like most exchanges; instead, it was created to serve as a public good.
Public good means that it serves as a tool for the community to trade their tokens without intermediaries or platform fees. Uniswap doesn’t work like most centralized exchanges where buyers and sellers are matched to determine prices and execute trades. What it does is to make use of a simple math equation and pools of tokens as well as ether to carry out the job.
One of the things that make Uniswap unique and quite different from decentralized exchanges is its use of the “Constant Product Market Maker Model” as a pricing mechanism. You can add any token to Uniswap simply by funding it with its equivalent value of ether as well as the ERC-20 token that you want to trade. Rather than connect buyers and sellers to help determine the price of a token, Uniswap makes use of a constant equation: x * y = K
In this equation, x and y represent the quantity of ERC-20 tokens and ether that’s currently within the liquidity pool while K has a constant value. The equation makes use of the balance between ERC-20 tokens and ETH (the balance between supply and demand) to determine the price of any given token. So, if someone wants to buy LINK tokens with ETH, then there will be a decrease in the supply of LINK tokens while ETH supply would increase, leading to an increase in the price of LINK.
So, on Uniswap, it’s only when a trade occurs that the price of tokens change. So, the platform is simply balancing out the value of every token and the swapping of the tokens based on the rate at which people want to buy and sell them. Another interesting thing about Uniswap is that any ERC-20 token can be listed on the platform without special permission.
Swapping your Tokens with Uniswap
To access the Uniswap protocol, you need to use its front-end at uniswap.exchange. You would require an Ethereum address, and you can make use of a wallet like MetaMask. That’s all you need to add or swap tokens to a Uniswap liquidity pool. Simply select the specific token you are trying to swap out of and also the one you want to swap into. Next, you will be required to approve the transaction by confirming the swap with your wallet.
Take Note: There may be additional Ethereum fees for swapping and it’s an excellent idea to have this at the back of your mind.
Developers have already created some front-end user interfaces for the swaps since Uniswap is an open protocol of smart contracts. For instance, by using InstaDApp, it’s possible to easily add funds into Uniswap pools without having to access the official Uniswap user interface. Also, with interfaces like Zapper.fi, you can add funds to Uniswap pools with only ether instead of ether and another token.
In the future, we will likely see a good number of integrations between this unique token swapping platform and new decentralized finance products. You can find out more about Uniswap and over a hundred top cryptocurrencies by reading “The Digital World of Crypto Riches.”
Uniswap has been in existence since 2018 when it was launched. But the protocol didn’t experience any significant traction until recently and this is as a result of the release of Uniswap V2. This is a major upgrade that enables direct ERC-20 to ERC-20 swaps as well as the addition of other ERC-20 tokens that were previously incompatible, such as Tether (USDT) and OmiseGo (OMG). A look at CoinMarketCap shows that the project is one of the top 50 cryptocurrencies based on market cap.
