Uniswap is a form of exchange that allows users to trade ERC-20 tokens without any need for a Middleman, to understand the uniqueness of this form of exchange there is a need to talk about the forms of exchange.
FORMS OF EXCHANGE.
First is the traditional exchange, which is owned by a company that is in charge of the regulation in this case it is referred to as a centralized exchange, this form of exchange also requires users to do know your customer (KYC) action which means they will submit their personal information such as address or id number, in a centralized exchange, to trade the trader will have to deposit a particular amount of money and the company is in control of the money and to trade there is a need for a “buy ” and “sell” order which will be submitted and recorded in an exchange order book and trade does not happen unless there is a match between the buyers and sellers.
The second form of exchange is the decentralized exchange and this is a part of the decentralized finance ecosystem also called the DEFI ecosystem these have been decentralized through the use of blockchain technology unlike the traditional exchange which requires the company’s control and servers, smart contracts are what is needed, a smart contract is a set of rules that is automated and is executed by independent computers void of control by anyone, with DEX there is no need for a KYC all that is needed is the users’ wallet.
EXCHANGE AND LIQUIDITY.
Liquidity on DEX is stored in a liquidity pool and the liquidity pool is a shared vault of funds that the public deposits through this there is a buy and sell order, the funds in the liquidity pool are deposited by people referred to as the liquidity providers, the Liquidity provider (LP) earns from the part of the DEX trading fees and this is called LP token.
For a traditional exchange the latest exchange rate determines the price of the token until there is another transaction from which another price is being agreed upon, while in a DEX there is no order book, therefore, a formula is used in determining the price and this is called the Automated Market Marker (AMM), for Uniswap the AMM is called Uniswap Constant Product Market Marker, this is a straight forward formula axb = k, for example, a = ETH, b = DAI, k = ETHDAI, prices of the token are not determined by what traders want to pay but instead by the size of the token, this modal helps to keep liquidity without any external market marker. The Liquidity Pool on Uniswap are ETHWBTC, ETHUSDC, ETHDAI, and ETHUSDT.
THE EVOLUTION OF UNISWAP.
Uniswap is built on an Ethereum network infrastructure, the Uniswap is the most popular DApp and the most forked because its code is used to build additional apps and over time there have been different versions built with each version birthing a better experience for users.
VERSIONS OF UNISWAP.
On November 2018, the first version was built and with this Ether can be traded to ERC-20 token and vice-versa only.
The V2 was released in May 2020 and this allows the trade of ERC-20 to ERC-20 without ant Ether being deposited first or trading ether.
The V3 was built on May 2021, and this helped to put the capital into better use of capital for liquidity providers, thereby enabling them to earn more and reduction in trading costs, the V3 brought about more efficient trading.
HOW TO USE UNISWAP.
- Get an Ethereum wallet eg Metamask or a wallet that can be integrated with other Ethereum applications.
- Visit the website uniswap.org
- Connect the wallet to Metamask
- Fund your wallet and begin trading as tokens can be swapped from the wallet directly to the uniswap platform.
It is important to note that the volume of trades that occurs on the Uniswap platform is what leads to the changes in price when you place a trade order and the order is performed, this phenomenon is referred to as Price slippage. Traders can put a cap on the degree of slippage they can bear before canceling their orders.
Price Slippage in Uniswap is a result of the transaction time on the Ethereum network and the time it takes for broadcasting and confirmation within which there might have been a change in the price.
The growth of Uniswap can be attributed to the decentralized nature of its token listings whereby any user can put up a token for listing although it is important to note that Uniswap is not responsible for any form of research on the token and this has led to many fraudulent token listings, therefore, it’s the traders and holders responsibility to carry out extensive research before investing on any token.
Unitoken was introduced to the financial markets on September 2020 via an airdrop to users of Uniswap before that period with each user getting 400 unitokens each which as of the time was worth $1200, the goal of the Unitoken was for it to be a governance token whereby Holders of the token can influence and vote on the development of Uniswap and the more unitoken a user has the more voting power but the Unitoken has gone to become not just a governing token but listed as one the top cryptocurrencies and this is as a result of users investment of the token through their belief of the Unitoken future value.
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