The program became the first widely-used decentralized DEX that allows users to buy and sell any Ethereum-based token directly via a web 3.0 wallet. And this is done without any deposits or withdrawals to a centralized order book. Uniswap stays firmly in first place for the most used DEX, despite the numerous clown platforms that have been created.
The platform ensures a one-stop shop for exchanging any ERC20 token quickly without having to deal with issues such as KYC, custody, or phishing. Uniswap can offer autonomous on-chain transactions at marginal costs by simply taking account of smart contacts.
As a result of its underlying mechanisms, the platform liquidity concerns have quite little to no price consequence for the vast majority of trading done on the platform.
The program is running on its May 2020 V2 upgrade as of recent – these include ERC20 <> ERC20 token pools, a native price oracle, and Flash Swaps. Uniswap V3 was only launched in May 2021, with great improvements in its features such as flexibility for liquidity providers, multiple fee tiers and lower withdrawal fees.
Uniswap launched its controlled token called UNI after the success of the launch of SushiSwap in 2020. The UNI is used to govern protocol changes. You can visit Uniswap info to keep abreast of all the changes that are carried out by their team.
What are Decentralized Exchanges?
Decentralized exchanges or DEXs are independent decentralized app (DApps) that allow digital currency traders to exchange digital currencies without having to give up control over their assets to any third party or intermediary.
This type of trading platform is solely different from their centralized exchange counterparts, where traders hand over their crypto funds to the exchange, which acts as a third party or intermediary and practically subjects IOUs for traders to exchange their digital currency with on the system.
DEXs were created to exclude the need for any third party to control the transactions carried out by traders. And so, their trading activities were free from external control. Through the help of smart contracts, DEXs operate automated order books and trades via the aid of smart contacts. And so, the peer-to-peer bound increases.
What’s Different about Uniswap?
Uniswap doesn’t operate on the traditional basis of digital exchange – that It, the platform does not have an order book. It operates on the model of Constant Product Market Maker, which is a part of a model called Automated Market Maker (AMM).
Automated market makers are known to be highly intelligent contacts that hold liquidity pools that exchanges use to trade. These pools are managed by liquidity providers. Once you deposit an equivalent value of two tokens in the reserve, then you are automatically a liquidity provider. Exchangers often pay a fee to the reserve which is often distributed to liquidity providers according to their share of the reserve.
Liquidity providers create a market by depositing an equivalent value of two tokens. These can either be ETH and an ERC-20 token or two ERC-20 tokens. These pools are commonly made up of stablecoins such as DAI, USDC, or USDT, but this isn’t a requirement. In return, liquidity providers get “liquidity tokens,” which represent their share of the entire liquidity pool. These liquidity tokens can be redeemed for the share they represent in the pool.
How to Trade on Uniswap?
To trade on Uniswap, you need to have ETH or any other ERC-20 standard token. You will then use Metamask’s wallet to trade these tokens. Metamask is simply a browser plugin that is used as an Ethereum wallet. With it, users can run dApps without logging into the Ethereum network as an Ethereum node.
The program is very unique because it allows you to connect with dApps right from your wallet. Most similar wallets include Coinbase Wallet, Trust Wallet, Formatic, Portis Wallet, and literally anyone similar to wallet connect.
Here are the four simple steps to trade on Uniswap:
1. Connect your wallet: Connect to Uniswap using a wallet like Metamask.
2. Choose the token pair: You can search and choose from a dropdown of available ERC-20 tokens on the “Swap” section of the website. You will need to choose both the token you are selling (the “From” field), as well as the one you want to buy (the “To” field).
3. Review settings: Expert traders often want to take privileged of the settings icon in the top left corner of the Swap interface. You can set things such as slippage tolerance and maximum trade time.
4. Swap: Click “Swap” and the transaction will show in a pop-up preview. This makes it possible for users to review the order and Uniswap fees. Next, you need to confirm a second pop-up preview, but on your wallet – This includes Ethereum withdrawal fees. After confirmation, the AMM model completes the rest of the transaction on the Ethereum blockchain and you receive your new tokens into your wallet automatically. The progress of your transaction can be tracked on the Etherscan.io blockchain explorer using the transaction ID or your wallet address.
Uniswap Trading Fees & Charges
Exchange platforms always charge taker fees, from the takers, and also maker fees, from the makers. The only alternative to these charges is known as “flat” fees. Flat fees mean that the platform charges the same fee for both the taker and the maker in the crypto market.
Uniswap has three fee tiers, 0.05%, 0.30%, and 1.00%. Based on the pair you exchange, you will be charged a 0.05%, 0.30%, or 1.00% fee on every trade you make on the platform.
Some exchanging pairs on Uniswap have a 0.30% fee, mostly the stablecoin pairs of USDC/USDT which charges a 0.05% fee.
The following are Uniswap pairs with a 0.05% fee:
The following are Uniswap pairs with a 1.00% fee:
How Secure is Uniswap?
The servers of Uniswap are always spread out ensuring maximum security to all traders on the platform. This is different from the centralized exchanges counterpart whose servers are always concentrated. The Spread-out of the Uniswap server reduces the risk of server downtime and therefore makes the platform very secure from external attacks, unlike their centralized counterparts which are vulnerable to attacks. This is possible because, with the removal of one server, there’s little to no effect on the platform server. With a centralized platform server, on the other hand, a lot of damage could be done if a server goes off.
In addition, when you trade with Uniswap the exchange itself never touches your crypto funds. Therefore, even if your transactions get hacked by a hacker, your funds can not be touched. A centralized exchange will require you to hold your funds at that transaction until they are withdrawn to your wallet.
A centralized transaction can easily be vulnerable to hackers and your assets held at such a transaction can be easily transferred to an unknown domain. You, therefore, lose all your funds. This is often not the case with Uniswap. Your exchange and assets are well protected on UniSwap.
Uniswap is certainly one of the best decentralized trading platforms for cryptocurrency traders to exchange their assets. The platform is free from the third party and is generally secure for transacting your funds. With Uniswap, you are assured of the safety of your assets. The charges are quite moderate and the same applies to withdrawal fees. It is certainly a great platform you’d want to use in trading your cryptocurrencies.
Written by: Narender Charan