You want to send your friend some money, how do you do that? Through bank transfer or some other centralized exchange medium. These centralized exchanges worked in the background of almost all the transactions that included general currency and cryptocurrency for a long time. This kind of exchange will have intermediaries like banks and offices in the middle to authorise the transaction and they serve as the medium of exchange. But as new ideas keep popping up there evolved a lot of other exchanges. But the one that managed to revolutionize the exchange options is the decentralized exchange.
The decentralized exchange allows its user to trade funds directly from their wallets to other wallets. This system doesn’t hold your funds nor does it require you to deposit funds to start trading. There is no distribution of authority or power or some organisation at work in the background. This works more like a peer to peer interaction. Decentralized exchanges are gaining popularity and became the foremost exchange in the crypto world. As the centralized exchanges are becoming uncertain with each passing day, decentralized ones are raising a step above. In contrast to centralized exchanges, decentralization lowers the transaction fees, privacy, financial inclusiveness and many more.
As you get familiar with the decentralized exchanges, there is more to it that you should know about. There are also Decentralized Exchange Protocols, that comes with the benefits of Decentralized exchange and a bit more than that. And Uniswap as we know it is also a Decentralized Exchange Protocol. Let’s go ahead and find out more about Uniswap and all that it has to offer.
What is Uniswap (UNI) ?
Uniswap(UNI), like we already mentioned is a Decentralized Exchange Protocol. Uniswap allows its users to trustlessly swap their funds across their platform without any intermediaries. It is built on the Ethereum blockchain. It is powered by a liquidity protocol to facilitate the exchange. The protocol functions without the help of an order book like in the traditional exchange. It allows anyone to trade right from their wallets without having to open an account or undergo an identity verification or even depositing the funds with them.
With Uniswap, the users can swap between ERC20 tokens seamlessly without the need for any order book or intermediaries. On top of that to make the transactions quickly and to provide its users with a good trading experience, Uniswap uses liquidity pools so that the users can sell and buy anytime and the traders will be available for them to complete the transactions. We will focus on this a little more when we talk about who Uniswap works.
Who are the founders of Uniswap (UNI)?
Decentralized exchanges are relatively new but became quite popular among the people. As they are built on the basis of blockchain technology coming up with effective ways to build a decentralized exchange has been a challenge for a lot of people. The developers of Uniswap were also one of the many at that time. But the way they made Uniswap is a lot more complex and effective than other Decentralized exchanges. And because of its uniqueness and the way it works, Uniswap has managed to be among the most successful projects in the DeFi movement.
Curious about the minds behind this success? The man behind all this success is a former mechanical engineer who worked at Siemens. Hayden Adams created Uniswap on the 2nd of November in the year 2018. After he came out of Siemens the opportunity came knocking on his door that one day would make him the King of DeFi Degens. Like a lot of us, he took up this project he was looking forward to making some money out of it. Little did he know, that project he took up made him more than just some money and managed to be one of the most successful projects in the DeFi space.
What makes Uniswap (UNI) Unique?
Uniswap as we already know has revolutionized the DeFi space. But how were they able to do that? What made them unique from the others in the same space? One thing that we can talk about here is how Uniswap has managed to eliminate the need for order books entirely. Uniswap uses a model called Automated Market Makers.
Automated Market Makers or AMM are a form of smart contracts that holds Liquidity pools or reserves against which the traders can trade. To be a liquidity provider one has to deposit an equal value of two tokens to the pool. Uniswap lets anyone be its liquidity provider. As a reward for being a liquidity provider, one will get a share of the fee that the traders pay for the transaction distributed across the liquidity pool as per the share they hold.
Uniswap just doesn’t connect the buyers and sellers but it uses an algorithm to determine the price of the tokens. The equation they use is ‘x*y=k’. In the equation, k is the product of x and y which are the two coins in the pool. K remains a constant and will help in determining the price of the tokens.
How many Uniswap (UNI) coins?
Uniswap token otherwise known as UNI is currently the 10th largest digital asset in the world. As per the recent records, fifty-two million UNI coins are on and circulating while one billion UNI coins were minted at the genesis of these coins.
Of all 1000 million (1 billion) UNI minted at the genesis, 60% of them i.e., 600 million UNI were allocated to its community members of which 15%(of the total tokens) were already distributed. 21.266% of the coins which is 212,660,000 were allocated to the employees and team members over four years. 18.044% of the coins which is 180,440,000 coins were allocated for its investors and 0.69% which is 6.9 million coins for its advisors all over 4 years.
The first UNI coins were introduced through an airdrop for all those who interacted with Uniswap on September 16th of 2020. They were introduced as governance tokens as the developers initially thought of distancing themselves from the platform eventually giving the governance to the holders of UNI. Later UNI rose to be among the top digital currencies in no time.
How does Uniswap (UNI) Work?
Uniswap(UNI) works with the help of AMM(Automated Market Makers). This is unlike the traditional order book way of trading. Previously if someone wants to trade their cryptocurrency, they would place an order stating that they want to sell or buy the coins for a certain price and that order will be listed in the order book. Usually, the seller quotes a higher price where the buyer quotes a lower price. After the orders are listed in the order book, the transaction happens only after a match is found with the listed prices. This method takes a longer time as finding a match who is ready to buy or sell at the exact price can be difficult. It becomes more difficult if the pool contains fewer traders.
Unlike this order book method, Uniswap uses a liquidity pool where market makers are always available to buy or sell coins. This makes the transaction easier and with less waiting time. It even allows you to swap between different coins even if you don’t hold those coins. This makes Uniswap special compared to its competitors. Also like we already mentioned, Uniswap uses the x*y=k equation to keep the balance and determine the price of the coins. You can trade any coins on Uniswap as long as they are part of the pool.
Uniswap aims at creating markets that are more efficient. It indeed has proven to do so. Did you know that Uniswap doesn’t get any cut in the fees the traders pay for the transaction? Yes, all the fees that are paid to Uniswap go to its liquidity providers only some portion of the funds are allocated for the development of Uniswap. To conclude, Uniswap is one of the best Decentralized Exchanges out there and is unique from the rest. It is making the crypto space more effective and user friendly with its unique methods.