Ȗniswap | 𝑬xchange

Uniswap protocol does things differently to centralized exchanges. Its open-source software has been built on the Ethereum blockchain

The Uniswap protocol does things differently to centralized exchanges. Its open-source software has been built on the Ethereum blockchain — and allows users to trade ERC-20 tokens without the need for a middleman. As well as helping to reduce fees, this can iron out some thorny issues concerning censorship.Liquidity providers play a big part in making everything happen without the need for an order book. Anyone can get involved in these liquidity pools as long as they contribute the equivalent value of two tokens, such as ETH and stablecoins such as USDT or DAI. In exchange, they'll get liquidity pool tokens that can then be used on other decentralized apps. This also ensures that they can get their contribution back at any time.

Users pay transaction fees whenever they complete a swap using a trading pair, and a portion of this goes to the liquidity provider based on how many pool tokens they own.

Uniswap pools rely on an equation that's known as "x * y = k.*

Here, x may represent ETH, y may represent USDT, and k reflects what happens when you multiply x and y to discover the pool's total liquidity. Constant product market makers — the smart contracts that hold liquidity pools — work on the basis that k must remain constant at all times.

Let's imagine that someone uses a liquidity pool to buy ETH in exchange for USDT. This transaction would ultimately mean there is now less ETH in the liquidity pool, and more USDT.

Someone who purchases ETH in exchange for USDT from a liquidity pool would ultimately affect the balance between the two assets in this trading pair — increasing the price of ETH, and decreasing the price of USDT. This slippage is generally less pronounced in larger liquidity pools.

Some of the main advantages of Uniswap include that it is far less complicated to use than other decentralized exchanges — and it means buyers and sellers are no longer responsible for creating liquidity.

When Did Uniswap Launch — and What Is Uniswap V2?

Uniswap.org launched back in November 2018 — and its inventor, Hayden Adams, said he was inspired by a post that Ethereum co-founder Vitalik Buterin had written about automated market makers (AMM).One of the biggest developments for this DeFi project came with the launch of Uniswap V2 in May 2020, which meant that ETH no longer needed to be one of the two assets in a liquidity pool. As of August 2021, there is a total value locked (TVL) of $4.96 billion on V2, according to information on Uniswap analytics here.As a result, token swapping can now take place directly between ERC-20 tokens, reducing the overall number of transactions and the gas fees associated with them. (That's good news for the Ethereum blockchain, which has been struggling with congestion brought about by the decentralized finance boom.)

Last updated