If you are not new to the cryptocurrency world, you must be acquainted with the different crypto coins available in the digital currency world. One such widely popular electronic currency is the Uniswap coin.
Uniswap is a decentralised cryptocurrency exchange that uses the latest liquidity and price discovery, using automated smart contracts to provide instant liquidity.
The Uniswap protocol is designed such that you can swap any ERC20 token with another at an exchange rate within ten per cent of Ethereum’s mid-market price. No fees are charged on orders or swaps, nor will there ever be, as it is contrary to the project’s spirit.
Read on to understand how cryptocurrency is used and ways to trade it.
What is Uniswap? How Does It Work?
Uniswap architecture was inspired by 0x and Kyber Network, and the founders were early employees at those companies.
Using Ethereum as a settlement layer sounds just like what they set out to accomplish with 0x, while the use of on-chain price discovery brings to mind the work Kyber is doing.
However, there are notable differences between Uniswap and these other decentralised exchanges. The most significant difference is that Uniswap does not charge transaction fees.
It should be noted that charging transaction fees would discourage users from using this mode of payment or accepting it as a means of payment.
The lack of transaction fees gives users incentive to use Uniswap instead of just holding onto their unswapped tokens in hopes they will be worth more tomorrow. It also means that enterprises can swap large quantities without the fear of being penalised by exorbitant gas fees.
For the most part, the Uniswap coin is structured like other decentralised exchanges. There are three roles within this protocol: user, maker, and relayer.
The users send tokens to the smart contract in exchange for unis (Uniswap’s native liquidity token) or ETH at a set price.
The makers offer liquidity by placing offers on the order book, which others can fill with unis or ETH.
Relayers facilitate all of this by hosting an order book to provide a UI, generate unique URLs, highlight best orders for users who may not be looking at their wallet or Uniswap, and various other functions.
How to Buy Uniswap Tokens?
Before you can buy any ERC20 tokens on Uniswap, you first need to acquire some ETH. The process can be done through any exchange that trades BTC or one of the ‘big three’ coins.
Benefits Of Uniswap
Uniswap assumes that the minimum exchange fee possible is 0 per cent and thus does not charge fees.
If you can find the right person willing to trade with you at a rate within ten per cent of the mid-market price, there are no fees for either party. If somebody wants to pay more than ten per cent, they must pay the difference in ETH.
The smart contract automatically calculates an estimated cost based on the size of the requested order and the duration for which it will remain open.
The requestor may adjust this estimate as needed before locking up their tokens until the counterparty has fulfilled its end of the deal.
Another benefit of Uniswap is that it lacks front-running risk. Front-running occurs when someone aware of a pending transaction uses that information to buy ahead of it and make profits.
With Uniswap, there is no way for traders to see orders before they are fulfilled; they can only work off the order book shown on the relayer.
To further this point, Uniswap’s makers aren’t provided with who placed an order or where it was sent to. They place their offers and wait for them to be filled.
The smart contract automatically pays the maker immediately after fulfilling their part of the trade and then sends funds to the requester once both sides have completed their tasks.
If neither side fulfils its end of the deal within 12 hours, unis will be refunded to both parties.
Uniswap is built using the 0x protocol, so it inherits the 0x relayer model. It means that you will be required to pay fees if you want to trade tokens other than unis or ETH.
Uniswap’s makers are also not charged transaction fees because their liquidity brings traders in. Thanks to higher liquidities and lower spreads (amount of price difference between offers).
Uniswap Team and Progress
Beyond protocol, the distributed ledger technology platform has recently released its native token, $BP. Retail traders and investors can now purchase the $BP token via the decentralized cryptocurrency exchange Uniswap.
Uniswap was developed by ex-0x employees, including Jacob Rothstein, Louis Holbrook, Michael Oved, Don Mosites, and Will Warren (founder of 0x).
All five founders are considered advisors on the Uniswap site, which should give you an idea of their level of involvement with the project.