Uniswap, a set of computer programs that runs on the Ethereum blockchain, is a mechanism that supports a decentralized fashion of token swapping. While trading, it allows an individual to lend their funds to a reserve called a liquidity pool and the reserve, in turn, allows the trader to perform the exchange of tokens.
In brief, Uniswap allows a trader to exchange their funds without involving any third party whatsoever.
But, the important question is, why do we need Uniswap?
How does it function?
Is it really worth using it?
To answer these queries, we will dive a bit deeper to understand what Uniswap is and how things go about it.
Excited to learn more? Let’s get started!!
High trading volumes, better liquidity, and fast settlement time are some of the advantages offered by the CEXs that have dominated the exchange markets for several years. However, as more and more people are learning about the blockchain tech and its applications, parallelism is being created by the trustless protocols of the DEXs.
Frankly speaking, a DEX is not simple to deal with. And, when it comes to Uniswap, it is even trickier to operate. Still, developers are constantly looking forward to building decentralized platforms for carrying out trade operations. And hence, Uniswap has emerged as one of the most successful projects of the DeFi movement.
Uniswap, in simple terms, is a decentralized exchange protocol that allows the trading of crypto tokens without involving a third party. It allows an individual to trade freely without intermediary assistance and provides a high-level decentralization and censorship resistance.
“Uniswap is a decentralized protocol for automated liquidity provision on Ethereum,” says the official website of Uniswap.
Presently, Uniswap is an open-source project and the Github code for Uniswap can be found here.
The foundation of Uniswap protocol was laid down by Hayden Adams in the year 2018. However, the tech framework that backs the Uniswap protocol, was inspired and implemented for the first time by Vitalik Buterin, the co-founder of Ethereum.
Uniswap has completely revolutionized digital architecture by encouraging the traders and customers to use a no order book. For those who are new to the term “order-book” can understand it as a list with the buying and selling price of cryptocurrencies.
Regarding the functioning, the basic operations of Uniswap are based on CPMM(Constant Product Market Maker), which holds close approximation to AMMs (Automated Market Maker) in terms of characteristics and functioning.
Now, the basic thing that goes on in an AMM is that there’s a specific reserve which the traders trade against. The reserves are called liquidity pools. When a trader has invested in the pool, the funds are provided to the liquidity providers depending on their respective shares in the pool. Anyone who wishes to become a liquidity provider can do so by depositing an equivalent value to the pool.
To be honest, no, it does not!
The trading fees are distributed amongst the liquidity providers and they can redeem it anytime as per their wish. Also, Uniswap does possess a native token but, not even 0.000005% of the token exchange undergoes a value cut while using Uniswap.
Uniswap is an amazing protocol and indeed a boon for the individuals with Ethereum wallets. It allows an effective and easy swap of tokens between the parties of interest without involving a third party.
However, it does have some limitations that might be subdued as developers are looking into the future versions of the Uniswap.
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