Uniswap is the most widely used decentralized exchange because anybody may publish a token or offer liquidity to the platform without needing to sign up or undergo rigorous identification verification. The exchange relies on a sophisticated algorithm instead of a central order book to determine the values of the many hundreds of trading pairs of ERC-20 tokens.
When it came to DEXs, Uniswap was unrivaled because of its cheap trading costs and rapidly expanding user base. In this post, we’ll discuss how Uniswap operates, the functions of the Uniswap coin, and the extent to which Uniswap dominates the market.
The UNI Coin
Every Ethereum address that has ever utilized the Uniswap platform prior to September 2020 received a free UNI token through an airdrop. Every participant in the airdrop received 400 UNI tokens. For context, at the time UNI was selling at about $3 per coin, which amounted to a whopping $1,200 airdrop.
The Uniswap coin provides its holders a voice in deciding the direction of the Uniswap protocol. The greater the number of UNI that a person has, the more influence they have in deciding whether or not to support ideas that would have an effect on the Uniswap protocol.
Holders of UNI tokens, for instance, may vote on the first community request to reduce the barrier to propose a modification to the protocol. At the moment, the protocol can only be altered by someone who owns around $35 million worth of UNI. If the threshold were lowered, it would make it simpler for individuals holding less UNI to suggest changes.
The Uniswap Method
When it comes to Ethereum decentralized exchanges, Uniswap is the leading candidate. Although there are presently more than 500 trading pairs registered on Uniswap, only roughly 50 of these trading pairs are performing volume that is more than $500,000 per day.
Coins on the Uniswap platform do not trade against ETH but rather WETH, which is one of the network’s most immediately noticeable features.
As with WBTC, WETH is just Ethereum that has been wrapped in a smart contract to create an ERC20 token. The ERC20 token is compatible with Uniswap and the other dozens of protocols in the DeFi ecosystem.
If you want to create a system that supports both ERC20 tokens and Ethereum, you’ll have to put in more effort than just converting ETH into WETH. WETH holders have unrestricted access to an on-demand ETH conversion service.
How Uniwap Acquires Liquidity
By connecting buyers and sellers, controlled exchanges increase the platform’s liquidity. Unlike other systems, Uniswap is unique. A liquidity provider on Uniswap is a user who adds two coins to the platform in an amount that is exactly equivalent to the amount the provider wants to trade. For instance, a pair of $50 DAI and WETH.
Each liquidity provider receives a trading fee incentive according to the number of DAI or WETH they deposit into their liquidity pool. At any moment, the liquidity provider may request to have their coins returned.
There is now $3 billion in Uniswap from various liquidity sources. When compared to the less than $25 million that was secured in May 2020, it is really astounding. In other words, this is a case of exponential expansion.
More than $100 million in daily trading activity has been seen on the decentralized exchange Uniswap, which has also seen a rise in its transaction volume. It’s incredible that Uniswap has also surpassed one of the most prominent centralized exchanges in the world in terms of daily trading volume.
Just a few months ago, Uniswap was doing between $8 and $15 million in daily volume, so this again demonstrates exponential growth.
Benefits of Using Uniswap
The Uniswap decentralized exchange is the most successful decentralized exchange that the world has ever seen. Not only does it let you swap crypto tokens conveniently but you can also earn interest on your crypto holdings via its liquidity pools.
However, there is no indication that this exciting technology will soon become obsolete. Within the next 10 years, there are going to be tens of millions of individuals who are going to gain knowledge about DEXs and how they function.
Final Thoughts
Uniswap has the benefit of being the first-mover, and it seems that they are going to be the most probable victor in the competition for trade volume so far. Will Uniswap be able to keep that edge throughout the course of time? The passage of time is the only thing that can definitively answer that question; nonetheless, the platform is efficiently managed, and its success in the future seems certain.