The Uniswap token (UNI) was one of the most talked about crypto assets in 2021, at the peak of the hype around DeFi. DeFi refers to the range of blockchain services that could form an alternative to centralized ones, particularly banks. Trading, lending, insurance — all of these activities DeFi allows to be done without intermediaries, much faster and cheaper.
About the project
Uniswap is a decentralized exchange (DEX) operating on the principle of liquidity pools and an automated market maker. Prices on it are set algorithmically, using mathematical formulas, and transactions are made using smart contracts.
How the exchange works:
- The liquidity pool contains assets of a particular trading pair, for example, ETH and DAI. These assets are contributed there by the users, called liquidity providers.
- When a user makes a transaction, the funds are drawn from the liquidity pool. At the same time, a share of the protocol commission for the transaction is allocated to the liquidity providers.
- To trade, you need to connect via web3-wallet, select the desired trading pair and enter the amount of currency given.
- Uniswap will immediately calculate the amount the trader will receive in return. At the same time, it should be considered that for each transaction, you need to pay not only the protocol commission but also fees to miners — in the Ethereum network, the commissions are called gas fees.
Uniswap runs on the Ethereum blockchain, so gas fees are paid in ETH (versions on other blockchains have subsequently been launched, but Ethereum remains the most popular).
The problem is that Ethereum is overloaded due to its high demand. This increases fees and payment processing time. The commission depends not on the transaction amount but on the network load, so it is not profitable to trade small amounts — it makes no sense to pay $5 for a $10 transaction.
At the moment of writing, the third version of the protocol is already working. Each new version brings fundamental changes for the convenience and benefit of users; with the launch of Ethereum 2.0, the protocol adapted to the new faster network.
On 16 September 2020, Uniswap announced the launch of its token, UNI. An interesting fact is that some of the tokens were distributed retrospectively. That is, each trader who used the protocol at least once before 1 September 2020 received 400 UNI — on the day of the announcement, it was about $1200. The assets were distributed to more than 50 thousand Ethereum addresses, making this airdrop one of the largest in history.
After a few days, UNI tokens were actively traded on centralized and decentralized exchanges and later appeared in exchanges. Such exchanges can be found with the help of BestChange.
A constant inflation rate of 2% per year will be introduced four years after launch. This should incentivise further participation in developing the UNI passive holder protocol. Uniswap has also launched incentivised liquidity pools that reward providers with additional UNI tokens. This has shown excellent results in attracting liquidity.
Token holders can participate in the governance of Uniswap, including voting to add new incentivised pools and other offerings. If desired, their votes can be delegated to someone else. With the token launch, the team has taken a step towards decentralizing the protocol — so that, over time, it can become a self-sufficient financial infrastructure on a public basis while maintaining the security and autonomy of the protocol.
Uniswap has already realized most of its planned potential. It is the leader in popularity and trading volume among exchanges with an automated market maker in the industry. Most Ethereum investors agree that it is a convenient option for asset management.
In addition, attempts to decentralize the project and open governance helped gain loyalty among blockchain supporters who oppose centralized crypto companies. The protocol has limitations — there is no possibility to trade assets that do not belong to a specific chain (the situation is saved by so-called wrapped tokens, for example, WBTC).