Investing In Uniswap (UNI) – Everything You Need to Know
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Table Of Contents
Uniswap (UNI) is the primary token for the Uniswap DEX (decentralized exchange). Uniswap is the largest DEX in the world in terms of market capitalization at this time. It’s also the most popular Ethereum Dapp in the market. Uniswap plays a vital role in furthering innovation and adoption across the crypto market. As such, the platform experienced record growth this year. A recent Dune Analytics report puts the current market share of Uniswap up 63%.
Specifically, Uniswap is a protocol that allows buyers and sellers to exchange ERC-20 tokens in a trustless and permissionless manner. ERC-20 tokens are the most popular style of token currently. They reside on the Ethereum network and are interoperable between all ERC-20 compliant wallets, exchanges, and Dapps. These tokens have seen a sharp increase in use since DeFi (decentralized finance) has been on the rise.
As the world’s top DEX, Uniswap represents a fundamental shift in the market. DEXs offer traders a safer alternative to large centralized exchanges that operate in a custodial manner. These exchanges keep large amounts of users’ cryptocurrency in-network wallets. These wallets are prime targets for hackers seeking a hefty payday. Opposingly, DEXs are non-custodial. They never hold your funds directly. In this way, Uniswap inherits the benefits of blockchain and removes the drawbacks found in centralized platforms.
What Problems Does Uniswap (UNI) Solve?
Uniswap was built to tackle some of the toughest problems facing the market. Its decentralized nature helps to eliminate the power and control that has been accumulated by major exchanges such as Binance and Coinbase. Additionally, Uniswap plays a critical role in providing new businesses access to international liquidity.
Any project can seed a liquidity pool utilizing Uniswap. All a developer needs to do is to provide their project token and a corresponding value of ETH to start the pool. This open strategy enables new projects to release their tokens directly to the market and attract the attention of a wider audience.
The added liquidity also helps to solve the problem of high spreads for illiquid assets on order-book exchanges. New projects can seed liquidity pools and build investor confidence in the project while also providing ROI opportunities via arbitrage trades.
Uniswap users can participate as a liquidity provider and earn rewards from trading fees. Notably, a percentage of all trading fees gets redistributed among the liquidity providers proportionally to their share in the pool. In this way, normal users can secure a passive income without having to relinquish ownership of their crypto directly.
Benefits of Uniswap (UNI)
Uniswap brings significant benefits to users and the market as a whole. Uniswap rose to stardom due to its open nature and simplistic interface. The trading window for Uniswap is basic. You can execute trades with a click and the entire network is remarkably flexible due to its characteristics.
Anyone can easily swap two Ethereum assets against an underlying liquidity pool using this network. Additionally, any project can create or seed a market by supplying it with an equal value of the two ERC-20 tokens being paired. However, this open nature also means you need to do your due diligence on all projects. There are a lot of scams and rug pull tokens that have joined the network.
Uniswap has no central authority to block users and seize their funds. There is no firm deciding if you have traded too much or what companies you can invest in. It’s a truly global decentralized market that provides equal access to all. In this way, the platform fully captures the essence of decentralization.
More Trading Options
Since Uniswap operates in a decentralized nature, there are usually price differences between its token listings and that of centralized exchanges. These differences can equal big returns for those who arbitrage trade between CeFi and DeFi. Today, there are tons of traders that earn profits exploiting price discrepancies between Uniswap’s price quotes and the rest of the market.
Uniswap is an open-source project that has undergone serious review by the development community. All the smart contract coding is secure and the platform is non-custodial, so hackers gain no profits from attacking it. You still need to be wary of rug pulls and scamsters when using Uniswap because there are no quality control measures in place for new projects.
DEXs provide you with more privacy protection than centralized exchanges. These protocols are permissionless, require no KYC (know your customer), and allow you to trade without having to register and log in to the market. The entire structure of these platforms is geared to anonymity in this way.
Uniswap keeps in-line with the ERC-20 token standard requirements. Additionally, the platform supports third-party API integrations. These protocols give investors the ability to utilize outside tools in their trading strategies. Today, there are multiple third-party interfaces, trading bots, and market management tools built to improve Uniswap’s UX.
How Does Uniswap (UNI) Work
Uniswap eliminates the traditional order book model and introduces an automated market maker (AMM) protocol that allows users to trade with a smart contract called a liquidity pool. This approach provides open access to the market. Anyone can swap tokens, add tokens to a pool to earn fees, or list a token on Uniswap.
Uniswap pools tokens into smart contracts and users trade against these liquidity pools. This automated liquidity protocol pairs every token against ETH. Interestingly, ERC-20 to ERC-20 swaps are transactions that convert ERC20a to ETH, and then to ERC-20b in a single transaction.
DEXs like Uniswap struggled to find the best price discovery engines in their early days. The original version of Uniswap relied on arbitrageurs for price discovery. The latest version of Uniswap does away with this model and instead integrates advanced oracles. Oracles are off-chain sensors that can communicate data to and from the blockchain.
Uniswap V2 router contract
Developers can add new tokens to Uniswap utilizing the Uniswap V2 router contract. This smart contract is crucial to Uniswap’s open approach to market development. Notably, anyone can see these contracts on the Ethereum blockchain.
Uniswap pioneered the use of liquidity pools. These pools help spur innovation by allowing new platforms access to capital. There are thousands of liquidity pools in use on the platform at this time. Also, liquidity providers earn profits by simply putting their funds into these liquidity pools. Specifically, users deposit tokens into a liquidity pool smart contract and receive pool tokens in return. These tokens can be traded for ETH instantly at any time.
Uniswap (UNI) token
The entire system utilizes UNI as its primary token. UNI is an ERC-20 token that is compatible with the Ethereum ecosystem. Currently, UNI is traded on various other popular exchanges, including a number of top-performing centralized exchanges like Coinbase Pro.
Uniswap Money Market
Uniswap recently ventured into the DeFi sector with its Money Market feature. This system allows users to post UNI LP tokens as collateral for a loan. These short term loans are repaid with interest. Specifically, liquidity providers earn a percentage of this interest for lending out their digital assets via the lending pools.
History of Uniswap (UNI)
The history of Uniswap (UNI) begins in 2016. It was at that time that Ethereum’s Founder, Vitalik Buterin, proposed the concept of a decentralized automated market maker. It was only a year before another well-known crypto developer took up the project. Hayden Adams made the concept a reality with some help from the ETH community. Specifically, he received various grants including a $100,000 grant from the Ethereum Foundation.
Today, Uniswap plays a vital role in the market. The recent explosion in DeFi platforms has made Uniswap even more valuable. These new projects depend on Uniswap to enter the market in a seamless manner. Consequently, Uniswap is an important launchpad for the entire DeFi sector.
How to Use Uniswap (UNI)
Uniswap is different than using a centralized exchange. For example, there is no registration and no KYC. To get started, all you need to do is connect a supported Ethereum wallet. To accomplish this task, simply click “Launch App” on Uniswap, then “Connect to a Wallet.” Notably, Metamask is a free ERC-20 wallet that integrates nicely with Uniswap. Once you’re connected, you can begin trading.
How to Buy Uniswap (UNI)
Uniswap (UNI) is currently available for purchase on the following exchanges:
Kraken – Founded in 2011, Kraken is one of the most trusted names in the industry with over 9,000,000 users, and over $207 billion in quarterly trading volume.
The Kraken exchange offers trading access to over 190 countries including Australia, Canada, Europe, and is our most recommend exchange for USA residents. (Excluding New York & Washington state)
Bitstamp – Founded in 2011, Bitstamp is one of the oldest & most trusted exchanges in the world. They currently accept Canada, UK & USA residents excluding the states of Alabama, Hawaii, Idaho, Louisiana, Nevada, & New Jersey.
Uphold – This is one of the top exchanges for United States & UK residents that offers a wide range of cryptocurrencies. Germany & Netherlands are prohibited.
Binance – Best for Australia, Canada, Singapore, UK and most of the world. USA residents are prohibited from buying most tokens. Use Discount Code: EE59L0QP for 10% cashback off all trading fees.
KuCoin – This exchange currently offers cryptocurrency trading of over 300 other popular tokens. It is often the first to offer buying opportunities for new tokens. This exchange currently accepts International & United States residents.
WazirX – This exchange is part of the Binance Group, which ensures a high standard of quality. It is the best exchange for residents of India.
Uphold Disclaimer: Assets available on Uphold are subject to region. All investments and trading are risky and may result in the loss of capital. Cryptoassets are largely unregulated and are therefore not subject to protection.
If you would like to invest via an IRA (USA only) it is also available on iTrust Capital.
How to Store Uniswap (UNI)
If you seek to make a major investment in UNI or if you are planning on HODLing this crypto for long periods of time, a hardware wallet is the best option. Hardware wallets keep your crypto stored offline in “cold storage.” This strategy makes it impossible for online threats to access your holdings. The Ledger Nano S or the more advanced Ledger Nano X both support Uniswap (UNI).
Uniswap – A Pioneering Force in the Market
Since day one, Uniswap has helped to push large scale cryptocurrency adoption. Nowadays, there are a bunch of DEXs that have copied this unique platform’s strategy. However, none has seen the levels of success achieved by this decentralized network. For these reasons, you can expect to see Uniswap (UNI) continue to hold great value in the market for years to come.
David Hamilton is a full-time journalist and a long-time bitcoinist. He specializes in writing articles on the blockchain. His articles have been published in multiple bitcoin publications including Bitcoinlightning.com
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