Here is all the information you need to know about Uniswap, from what it accomplishes to potential issues.
One of the most talked-about cryptocurrencies of 2021 is Uniswap (UNI). If you’ve been keeping an eye on the charts, you’ve probably seen this cryptocurrency swiftly rising. With a market capitalization of more than $11 billion, it is currently just outside the top 10.
Perhaps the success of Uniswap thus far and the enthusiasm surrounding it have convinced you to purchase it. Let’s look at the first thing you need to be aware of.
1. Uniswap is both a cryptocurrency and a decentralized exchange
The Uniswap exchange, a decentralised cryptocurrency exchange that provides peer-to-peer trading, is where you can start learning about Uniswap.
An exchange that is centralised, like Coinbase, oversees and enables transactions. Additionally, you must create an account. A decentralised exchange differs from centralised exchanges in that there is no need for registration and no third party is engaged. All you need to do to start trading cryptocurrencies is link your crypto wallet to the Uniswap app.
Applications for decentralised finance (DeFi) have expanded significantly over the past year. And based on trade volume, Uniswap is among the top decentralised exchanges.
What about the cryptocurrency Uniswap? Because it is a governance token, holders can cast a vote on amendments to the Uniswap exchange. Its success is dependent on the exchange because more people will probably want to purchase the token if the exchange becomes more well
2. The exchange operates as an automated market maker
An automated market maker is the Uniswap exchange. This kind of decentralised exchange allows users to trade different token pairs. Smart contracts are used for trades, and mathematical procedures are used to determine prices.
The exchange has liquidity pools that it needs to function. A pair of cryptos are funded by each liquidity pool. When users execute trades, liquidity pools are tapped.
Think about trading your Ethereum (ETH) for Dai (DAI). You would connect a crypto wallet by going to the Uniswap swap page. The amount of Ethereum you wish to exchange would then be entered, and you would then choose Dai as the cryptocurrency you wished to receive.
Uniswap would determine the amount of Dai it will provide you in exchange for your Ethereum right away. Uniswap will pay you the Dai from its Ethereum/Dai pool once you confirm the trade. A transaction cost known as a gas fee would also be charged, and it would always be paid in Ethereum.
But from where do those pools of money get their money? Users of Uniswap enter the picture here.
3. Users can lend their crypto to Uniswap
By rewarding users who lend their own cryptocurrency, Uniswap ensures that its liquidity pools have enough money. To lend crypto to any of Uniswap’s pools, select the “Add liquidity” option.
You must add identical quantities of each cryptocurrencies to the pool when providing liquidity. You would have to lend Dai and Ethereum, for instance, if you selected the Ethereum/Dai pool.
You will receive a portion of the gas fees for that liquidity pool as payment from Uniswap in exchange for your participation. In keeping with the previous scenario, you would receive a portion of the gas fees for any transaction using Ethereum and Dai.
4. It runs on the Ethereum blockchain
Uniswap was created on the Ethereum blockchain. Users on Uniswap must use Ethereum to pay gas fees because of this.
Ethereum’s popularity has caused congestion, which is the problem. The Ethereum blockchain can’t keep up with the volume of transactions, which increases fees and slows down processing.
Furthermore, gas prices are determined by the level of traffic at the time of a transaction, not by the value of the transaction. Because of this, Uniswap is a bad option if you just plan to trade little amounts. Paying $30 in fees for a $50 deal is absurd.
In preparation for Ethereum 2.0, it has undergone a number of improvements. The improvements should significantly reduce processing times and gas costs. However, it’s likely that it won’t be finished until 2022. Until then, Uniswap will be impacted by Ethereum’s problems.
5. It has inspired a range of competitors
There are many other options besides Uniswap. There are many decentralised exchanges that function in a similar way. Here are a few illustrations:
Running on the Binance Smart Chain, which presently has substantially cheaper fees than Ethereum, multiple other exchanges have an advantage over Ethereum. Particularly PancakeSwap has been successful as a less priced substitute for Uniswap.
6. You can buy the Uniswap token or trade for it
There are a few options if you wish to invest in Uniswap. The first is to purchase it via a cryptocurrency exchange like you would any other. Top cryptocurrency exchanges have Uniswap on their lists. Here are a few well-liked choices:
Additionally, you can exchange for it on the Uniswap market. You would first need to purchase another coin and transfer it to a cryptocurrency wallet in order to achieve so. You would connect your wallet on the Uniswap app before doing your exchange.
7. It’s a high-risk investment with room to grow
Before purchasing Uniswap, be sure you are aware of the hazards. Due to the volatility of cryptocurrencies, it’s possible that your investment will one day become worthless. Regulators may attempt to crack down on DeFi as a whole, which might hurt Uniswap, is one of the largest possible issues.
There are benefits to liking Uniswap as an investment, risk included. With 63.8% of the market share among decentralised exchanges as of the time of this writing, it has established a commanding lead over the opposition. That also pertains to Ethereum’s problems. In the event that Ethereum 2.0 is a success, Uniswap may be able to attract additional customers who were previously turned off by high costs.
DeFi proponents should consider Uniswap as a viable cryptocurrency investment. If you decide to purchase some, keep in mind that you may also earn incentives by lending it to a liquidity pool.