Uniswap is a popular decentralized trading protocol, known for its role in facilitating automated trading of decentralized finance (DeFi) tokens. An example of an automated market maker (AMM), Uniswap launched in November 2018 but has gained considerable popularity this year thanks to the DeFi phenomenon and associated surge in token trading.
Uniswap aims to keep token trading automated and completely open to anyone who holds tokens while improving the efficiency of trading versus that on traditional exchanges.
How Uniswap Works?
Being a decentralized exchange, Uniswap excludes centralized order books. Instead of highlighting specific prices to buy and sell. Users can insert the input and output tokens; meanwhile, Uniswap highlights the reasonable market rate.
You can use a web 3.0 wallet such as Metamask to conduct the trade. At first, select the token to trade and the token you want to receive; Uniswap will instantly process the transaction and automatically update your wallet’s current balance.
Why Should I Choose Uniswap?
Thanks to its easy-to-use functions and marginal fees, Uniswap beats other decentralized exchanges. It does not require native tokens, no listing fees, and low gas cost compared to other decentralized exchanges on the Ethereum network.
The project has an inherently permissionless nature that allows users to develop the ERC-20 market as long as they amount equivalent to Ethereum to support it. Probably, you’ll be wondering what makes Uniswap different from other DEXs out there, and below we outline its valuable features that have gained tremendous traction lately.
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— Uniswap Labs 🦄 (@Uniswap) November 18, 2021
You get to trade any Ethereum-based token. The platform neither charges the listing process nor a token listing fee. Users instead trade tokens in a liquidity pool that determines which token to list. The v2 upgrade allows users to merge two ERC20 tokens in a trading pair without using ETH.
There are some exceptions as not all trading pairs are available. According to CoinGecko, Uniswap’s reach of over 2,000 trading pairs surpassed all other exchanges.
Uniswap does not hold funds in custody: Users worried if the exchanges will store their funds don’t need to fret. The Ethereum-based smart contracts control users’ funds entirely, and they monitor every single trade. Uniswap produces separate contracts to handle trading pairs and support the system in other aspects.
It shows that funds go into the user’s wallet after every trade. There’s no central body to seize your funds, and users don’t have to provide identification to create an account.
No involvement of central authorities: Unlike the traditional financial system, there is no central body to control prices. Its liquidity pools implement formulas based on token ratios. To prevent price manipulation and generate reasonable prices, Uniswap uses the oracles.
Liquidity providers: Users can mint profits from UNI fees by simply staking tokens in Uniswap liquidity pools. Projects can invest in liquidity pools to support trading.
Trader: Uniswap operates by creating outstanding markets for two assets through liquidity pools. By abiding on set protocols, Uniswap uses an automated market maker (AMM) to reach the end-user with its price quotations.
Marginal Fees: Uniswap charges 0.3% per trade, which is close to what other cryptocurrency exchanges charge. Such crypto exchanges charge around 0.1%-1%. Most importantly, the fee per trade surges when the Ethereum gas fee rises. Thus, Uniswap tends to find an alternative to this issue.
UNI Withdrawal Fees: Every exchange in the crypto market charges users specific amounts of withdrawal fees depending on how they operate. However, Uniswap is different. The exchange charges users only the normal network fees that follow the execution of a transaction.
Living in an era where obstacles and barriers keep preventing a product from reaching its full potential, Uniswap has undeniably provided an exchange that traders have been needing for so long.
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