The rapid development and growth of the crypto market cannot be separated from the progress of DeFi (decentralized finance) applications developing on the Ethereum blockchain. One example is Uniswap.
Uniswap is a decentralized exchange application that allows the exchange of ETH and ERC-20,tokens, which is the most commonly used token standard on the Ethereum blockchain.
Now, to understand more about what Uniswap is, from its history and founders, its evolution, how it works, to how to buy it, check out the full review below.
What is Uniswap?
Uniswap launched UNI tokens in September 2020, governance tokens that give holders voting rights to influence changes to the Uniswap protocol.
As in DeFi (decentralized finance) projects, governance tokens are very important to ensure the distribution of rights to users so that the platform remains decentralized.
As of July 2021, UNI is the DeFi token with the largest market capitalization in the world, reaching a value of $8,600,000,000.
History and Founder of Uniswap
In 2018, Hayden Adams founded Uniswap. Adams completed his Bachelor of Mechanical Engineering at Stony Brook University, United States, in 2016.
Then, after graduating, Adams worked as an engineer at Siemens before finally founding Uniswap in 2018.
Evolution of Uniswap
It is important to note that Uniswap released Uniswap v3 in May 2021, which is an upgrade from the previous version.
This update gives liquidity providers more control to set the price range of the assets they deposit, as well as offer fairer compensation according to the level of risk they take.
With these updates, liquidity providers can make greater profits even with fewer deposited assets.
How Uniswap Works
Trading cryptocurrencies or other assets has generally been facilitated by centralized exchanges operated by specific companies.
These companies act as intermediaries between buyers and sellers, where users have to hand over their funds or assets to the company to make transactions.
As a decentralized exchange, Uniswap automates this process using smart contract technology on the Ethereum blockchain.
As such, anyone can trade ERC-20 tokens (e.g. USDT, BNB, LINK, DAI) without the need to entrust their funds to a third party.
However, how does Uniswap automate this process to connect buyers and sellers of assets? The answer is that Uniswap uses a system called Automated Market Maker (AMM).
Through the AMM system, Uniswap bridges the needs of traders by providing assets through liquidity provision.
Becoming a Liquidity Provider at Uniswap & Its Benefits
Indeed, anyone can become a liquidity provider by depositing a pair of tokens into a liquidity pool. Here’s an example for clarity:
For example, let’s say you choose to deposit ETH and DAI. First, enter the amount of ETH you want to deposit, for example 1 ETH. Then, Uniswap will calculate the amount of DAI you need to deposit equivalent to 1 ETH, which is 1780 DAI (price as of July 2021).
The ETH and DAI you deposit will go into a DAI/ETH liquidity pool that will be used by users who want to exchange ETH for DAI or vice versa.
You will receive a DAI-ETH token that represents your ownership of the assets in the pool. This token is useful when you want to withdraw assets from the pool.
Uniswap uses the x*y = k formula to keep liquidity constant. Every transaction, including asset purchases, incurs a fee that is put into the liquidity reserve to keep the number of tokens in the liquidity pool stable despite any trades or changes in the number of tokens.
So, what is the trading mechanism at Uniswap? The following is an explanation:
Suppose you want to buy ETH using DAI. Using the formula above, the amount of ETH is x, the amount of DAI is y, and k is the product of xy or the amount of ETHDAI in the pool which should always be constant.
Consider the following illustration: If you buy 1 ETH for DAI, the amount of ETH in the DAI/ETH liquidity pool will decrease by 1, and the amount of DAI will increase by 1780 DAI (price as of July 2021).
To keep the amount of liquidity in the DAI/ETH pool or k constant, Uniswap charges an additional fee for each purchase of ETH tokens with DAI. The larger the amount of ETH you wish to purchase, the higher the surcharge you will have to pay in DAI.
As a liquidity provider or depositing assets in Uniswap, you will be incentivized with a share of the fees paid by traders when making transactions. The amount of incentive you get is equivalent to the proportion of the number of tokens you keep in the liquidity pool.
If you deposit $100 worth of assets into a liquidity pool that contains $10,000 worth of assets then you will own 1% of the assets in the pool and receive 1% of all fees that traders pay when trading in the pool.
UNI Token Price and Market Capitalization
Image Source: Coinmarketcap (Uniswap)
UNI currently has the largest market capitalization among DeFi tokens, reaching $4,880,000,000. The number of UNI currently circulating in the market is 600,030,000 coins out of a total maximum supply of 1,000,000,000 tokens.
As of July 12, 2024 at 13:20 GMT, the price of one UNI token is $7.8633. In addition, to check the current UNI price, you can check current price on CoinMarketCap..
How to Buy Uniswap at INDODAX
For those of you who want to buy Uniswap (UNI) at INDODAX, consider the following steps, among others:
- Register or log in to your INDODAX account if you are not yet a member or already have an account.
- Make a deposit by following the instructions on how to make a deposit available.
- After the balance is deposited and entered into the INDODAX account, visit the INDODAX market.
- Search for Uniswap (UNI) in the IDR market (UNI to IDR) and click to access the crypto asset page.
- On the crypto asset page, specify the number of UNI you want to buy and the desired purchase price, or make an instant purchase at the current price.
- Wait for the price of UNI to increase over a certain period.
- Once the price has increased, you can sell the asset at a higher price using the Instant method.
- If you want to sell using the Limit method, place a sell order after buying the asset and make sure the selling price you enter is higher.
Conclusion
In conclusion, Uniswap offers several key benefits, including (1) decentralization, (2) openness and accessibility, and (3) compensation for liquidity providers.
Uniswap plays an important role in the DeFi ecosystem by providing a fully decentralized exchange service. It supports the DeFi ecosystem by facilitating greater liquidity and easier access for global users.
On the other hand, the UNI token has bright prospects in the future, with a large market capitalization and extensive use in governance and incentivization on the Uniswap platform.
Uniswap itself is constantly evolving with the development of new versions such as Uniswap v3, demonstrating their commitment to innovation and improved user experience.
As a disclaimer, it is important to understand that trading crypto assets involves high risk and significant price volatility.
Therefore, before engaging in trading or investing, it is important to conduct thorough research, understand the risks involved and take the necessary precautions.
It should also be noted that the above information does not constitute financial or investment advice, and trading decisions are the sole responsibility of the individual.
FAQ
1. What is Uniswap?
Uniswap is a decentralized exchange (DEX) application that allows the exchange of ETH and ERC-20 tokens without intermediaries, using smart contract technology on the Ethereum blockchain.
2. What is the function of UNI token in Uniswap?
The UNI token is a governance token that entitles its holders to vote on changes to the Uniswap protocol thus ensuring the platform remains decentralized.
3. How does the Automated Market Maker (AMM) work in Uniswap?
Uniswap’s AMM bridges the needs of traders by providing a liquidity pool. Each transaction uses the x*y=k formula to keep liquidity constant.
4. How to become a liquidity provider in Uniswap?
To become a liquidity provider, you need to deposit a pair of tokens (e.g. ETH and DAI) into the liquidity pool. In return, you will receive LP tokens that represent ownership of assets in the pool.
5. How to buy UNI tokens?
You can buy UNI tokens on exchange platforms like INDODAX. Make sure you have enough Ethereum and ETH wallet to pay the gas fee before making a transaction.
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