Uniswap

4.9/5

Uniswap is a decentralized exchange built on Ethereum that leverages global liquidity pools to create unique markets for any pair of assets and uses an automated liquidity protocol as its trading model.

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PROS

  • User-friendly interface
  • More than 200 DeFi integrations
  • High liquidity
  • DeFi coin with staking and potential protocol fee sharing

CONS

  • Supports only ERC-20 tokens
  • Not as decentralized as it appears
  • No live chat support

Background Information About Uniswap

Founded in 2018 by Hayden Adams, Uniswap is a fully decentralized protocol for automated liquidity provision on Ethereum. The platform empowers developers, liquidity providers, and traders to participate in a financial marketplace that is open and accessible to all.

In September 2020, Uniswap launched its token UNI. It enabled Uniswap to bring community governance to the Uniswap community. Not only that, but it also enabled scores of its users to stake their UNI token and make more profits. It was a major move to make Uniswap a truly decentralized protocol. 

How does Uniswap Work?

Uniswap is an automated liquidity protocol. It leverages smart contracts to operate liquidity pools to enable buying and selling of tokens without using the traditional market order books. It means that in Uniswap, there is no order book, no centralized party, and no central facilitator of trade. 

Each pool is defined by a smart contract consisting of some functions to enable swapping tokens, adding liquidity, and much more. At its core, each pool utilized the function x*y=k to maintain a curve along which trades can happen. Further, the pool keeps track of the reserves (liquidity) and updates those reserves each time a user trades. As the reserves are automatically rebalanced, a Uniswap pool can always be used to buy or sell a token without requiring a counterparty on the other side of a trade.

How to Start Trading at Uniswap?

To start trading tokens in the Uniswap app, you first need to get an Ethereum wallet and obtain some tokens.

1. Creating an Ethereum Wallet

Your Ethereum wallet is the key to interacting with the Uniswap app and all decentralized applications (dapps) in the Ethereum ecosystem. Your wallet stores your private keys – the secret password you use to authorize transactions. To create a wallet, you can use any popular wallets like Metamask, Coinbase, Rainbow, or Trustwallet. 

2. Getting your first tokens at Uniswap

The Uniswap app supports the trading of any token for another token. In case you are using Ethereum for the first time, you need to purchase your very first token using fiat money from a bank account or a credit card. 

Though you can trade almost any ERC-20 token on the Uniswap app, your wallet must have ETH to execute a trade. It is because all the transactions on the Ethereum network must pay a gas fee to miners who perform the computation. Moreover, you must pay the gas fees in ETH, and hence you must hold enough in your wallet to cover the cost of a Uniswap transaction. 

Once you buy ETH, you can send it to your wallet and navigate the Uniswap app to start trading. 

It is crucial to note that non-Ethereum assets such as BTC, BCH, DOGE, and other similar tokens, are not compatible with the Uniswap protocol because they are not ERC-20 tokens. These assets live on different blockchains separate from the Ethereum blockchain.

How to Connect a Wallet to the Uniswap app?

To start using the Uniswap app, you need to connect your wallet by following these steps.

  1. Visit the website of Uniswap, and click on the “Connect to a Wallet” button.
  2. You will get a prompt asking you to select your wallet from the list. If you do not see your wallet in the list, select “WalletConnect” to get a QR code that your wallet can scan.
  3. After this, your wallet will prompt you to confirm the connection. Once you confirm, you will be connected to the Uniswap app, and ready to trade

Frequently Asked Questions About Uniswap

Uniswap is one of the strongest DeFi protocols in the business. It is highly stable, and its back-end security is much safer than other platforms. They run through a process that does not require an order book, making it harder to track or hack the platform or a user’s account.

At Uniswap, you can find a token in the default list. If you do not find a token, you need to find the token address using Etherscan and paste that address into the search field.

As the name says, there is no direct withdrawal process at Uniswap. All you can do is swap. You can swap your token into another token and use them accordingly.
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