Uniswap is one of the decentralized exchanges (DEX) that can be said to be on the rise. However, what is the advantages and disadvantages?
This is one of the DEXs that are loved by crypto asset activists, especially people who are interested in decentralized finance (DeFi). Uniswap comes with the latest solutions and technology inside DeFi.
Before we discuss what its advantages and disadvantages are, we will first explain what Uniswap is and how it works. Uniswap is a protocol that allows buyers and sellers to exchange ERC20 tokens.
UNI token is a payment instrument in the protocol. This is the same as on the Tadpole Finance platform which uses the TAD token. Uniswap is here to provide solutions to liquidity problems that exist in other ordinary exchange exchanges. The platform provides automatic liquidity provision. Thus, liquidity no longer depends on the buyer and seller mechanism.
The advantage you get if you participate as a liquidity provider is from trading fees. To do this, you only have to participate in a certain pool of liquidity by providing the same number of ETH and ERC20 tokens as the exchange contract.
The Advantages and disadvantages
One of its advantages is its decentralized nature which makes it easy to access the crypto market. Everyone can access without having to register and log in to the market, only by connecting their personal wallet so they can immediately do crypto trading activities. Other advantages also include aspects such as new tokens that can directly access liquidity by adding their tokens to the exchange with the Uniswap V2 router contract. Apart from that, another advantage is that liquidity providers get profit by simply putting their funds into the liquidity pool.
Then what are the shortcomings? First, the flash loan / swap feature still relies on arbitrage trading to balance the market. Then, the protocol also has a list of fake tokens because it is permission less. Finally, the gas fee price is quite high.
So, its use still has a relatively high risk. So, you need to do good risk management and learn more about the governance of this protocol.
So, those are the advantages and disadvantages of Uniswap. Friends can see other DeFi ecosystems at Indodax.Academy and the official Indodax social media account. Stay tuned so you can get more benefits.