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What is Uniswap? ($UNI)

Jaiya Gill
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What is Uniswap? ($UNI)

Uniswap is a pioneering on-chain exchange and a pillar of decentralized finance.

What is Uniswap ($UNI)?

Uniswap is the largest decentralized exchange (DEX) that allows anyone to trade Ethereum-based ERC-20 tokens without an intermediary.

In addition to facilitating trading, the Uniswap protocol also helps provide liquidity to ERC-20 tokens. It does this by incentivizing users who stake their crypto assets in liquidity pools by rewarding them with $UNI tokens.

$UNI is the protocol’s native and governance token that allows its holders to vote on key protocol changes and Uniswap Labs ****is the company that developed the Uniswap protocol, along with the web interface.

History of Uniswap

The Uniswap protocol was invented by Hayden Adams based on a suggestion for decentralized exchanges provided by Vitalik Buterin in the Ethereum subreddit in 2016.

Hayden received several grants as well as $100K from the Ethereum Foundation to make this a reality and the Uniswap protocol was launched in November 2018.

For more about the story of Uniswap, check out Hayden’s blog post here.

How does Uniswap work in a nutshell?

Uniswap is a decentralized exchange built on Ethereum that allows crypto trades without the need for centralized intermediaries. It achieves this through three main components.

1. Decentralization

The Uniswap protocol is an open source peer-to-peer decentralized exchange that uses immutable, persistent, and non-upgradable smart contracts on the Ethereum blockchain which makes it censorship-resistant, secure, and self-custodial.

Uniswap’s services are open for public use. No one has the ability to restrict who can or cannot use them. The result is anyone can swap tokens, list a token, or provide liquidity in a pool to earn fees.

2. Liquidity Pools

Liquidity pools are token pairs stored in a Uniswap pool contract. They allow users to swap against the tokens within a pool. These pools rely on users for funding. Users create market liquidity by providing token pairs to a pool. To incentivize pooling liquidity, providers are rewarded with $UNI tokens in return for staking their assets in the pool.

3. Automated Market Maker

Automated Market Maker (AMM) is a type of protocol that enables buying and selling crypto assets in a decentralized way. It’s a smart contract that manages liquidity pools and allows for automated and permissionless token swaps. It is also known as a Constant Function Market Maker.

The AMM analyzes a token pairs’ supply and demand within a liquidity pool. This is how the AMM determines the real-time value of a token and provides efficient token prices for each swap. This system replaces the traditional order book used by centralized exchanges. Instead of matching individual buy and sell orders, users interact with the liquidity pool using the AMM.

What is Uniswap used for?

Uniswap is used to trade Ethereum-based crypto assets without a centralized intermediary.

The native token $UNI also has a market cap of over $4.8 trillion making it one of the top cryptocurrencies and a speculative asset.

Learn more about Uniswap

Uniswap’s website - https://uniswap.org

Uniswap Docs - https://docs.uniswap.org/

Uniswap FAQs - https://uniswap.org/faq

Uniswap’s Ecosystem - https://uniswap.org/ecosystem

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