Uniswap – All You Wanted to Know About the Decentralized Crypto Exchange


Bob Coiney

February 5, 2021

Uniswap is a decentralized crypto exchange that operates on the Ethereum blockchain. Let us read on to find out more about the exciting platform. 

If you are a trader or investor, then you would probably know that your crypto trading happens on centralized exchanges. They can be Binance and Coinbase. They are good, safe, and reliable. However, did you know that they are governed by a single authority?

It means that you have your funds in their control. You most likely cannot do anything much if the market goes down. While trading on a centralized platform comes with its own advantages, and there is no denying in that there are few flaws that you may want to know about as well. 

Liquidity is the central issue. When the liquidity is low, then the traders can’t fill their orders. You cannot expect the market to always be active and busy or what is known as a liquid market, and when it is dull, the market is called a narrow market. 

Is there a way out or an alternative? 

Yes, there is. You have Uniswap for doing your trading flawlessly.

What is Uniswap?

Uniswap is a decentralized crypto exchange (DEX). That means traders have more freedom and can make choices of their own. Besides, they are also offering you with a powerful mode where you can trade better. 

The platform was designed in 2018 on ETH blockchain. As most of you know, it is the world’s second-largest cryptocurrency. You can use the platform with all ERC-20 tokens and capitalization with wallet services like MetaMask and MyEtherWallet. 

It is open-source, making it effective to changes and effortless updates. According to data, Uniswap is the 4th largest decentralized finance (DeFi) platform. As of now, it has more than $3 billion in crypto assets stashed away safely in its platform. 

How does Uniswap work?

Its operation is simple. There are two smart contracts called an exchange contract and a factory contract. They are automatic computer programs created to perform particular functions if certain conditions are met. 

The factory smart contract lets you to add new tokens. On the other hand, the exchange contract enables all the token swaps. The ERC20-based token can be interchanged with another on the Uniswap v.2 platform.

How token price is determined

In this platform automated market maker system is used. The price of the coin is either decreased or increased depending on the number of coins. The equation for working would be the price of each token is x*y = k, where the token amount one is x and the token amount two is y. K is a constant value.

How to use Uniswap?

It is quite simple actually because you just need to ensure you have an ERC-20 supported wallet setup. A few of them include Coinbase wallet, MetaMask, WalletConnect, Portis, or Fortmatic. When you have acquired any of the mentioned wallets, you have to add ETH. 

By doing that, you can trade on the platform and pay for gas. You can make your gas payment using three modes, which are slow, medium, and fast. Slow is a cheap mode, while fast is quite costly, and medium hovers between them both. 

Uniswap’s UNI token

This is an exciting feature of Uniswap. The UNI token is also called as a governance token. Holders can vote for changes and new developments on the platform. You can decide on how the minted tokens can be distributed; besides, you also get to have a say on the changes in the fee structure.

It was designed in September 2020 to discourage investors from using the rival DEX SushiSwap. SushiSwap allowed users from Uniswap to reallocate their funds sublimely. They were rewarded with many SUSHI tokens. 

Uniswap designed 1 billion UNI tokens and distributed them to traders and investors who planned on using their platform to counter this. Most of the users have received close to 400 UNI tokens, which amounts to more than $1000. 

FAQs on Uniswap 

  • How can Uniswap make money for you?

You have to pay a 0.3% fee on a pool contract for every transaction on the platform. It is divided between the liquidity providers according to the share. When you have 50% of the liquidity, you stand to make 50% of the fee. 

  • Is Uniswap safe to use?

Any platform or system comes with its own share of loopholes. However, Uniswap, for now, is relatively safe because it is a decentralized exchange. In this sense, you can trade between self-custodied wallets, and they do not hold assets. 

  • Does Uniswap come with a KYC?

No, there is no need for the KYC to be implemented on Uniswap. Probably, this is one of the main benefits of using it over other crypto exchanges. Instead of using the KYC, as a trader, you can perform transactions using your wallet. 

  • Can American citizens make use of Uniswap?

Well, Uniswap was launched in 2018 in the United States of America. There is no reason why American nationals cannot use the platform. The automated token exchange is based on ETH investors can trade on it.