Key Takeaways:
- Uniswap is a decentralised exchange (DEX) built on Ethereum using the Automated Market Maker (AMM) model.
- Trades on Uniswap are made against liquidity pools instead of the traditional order books.
- Uniswap V2 charges a 0.3% fee for V2 trades, with Uniswap V3 having a more flexible fee structure.
- UNI, the protocol’s governance token, allows holders to vote on changes to be implemented within the protocol.
What Is Uniswap?
Uniswap is a decentralised exchange (DEX) built on the Ethereum blockchain. Unlike centralised exchanges (CEXs), which rely on an order book to match buyers with sellers, Uniswap operates as a DEX that leverages the Automated Market Maker (AMM) model. This means users trade against a liquidity pool, which is a collection of funds deposited by other users.
How Does Uniswap Work?
There are various features for Uniswap’s AMM model. Below is a breakdown of how it operates:
- Liquidity Pools: At its core, Uniswap relies on liquidity pools, or collections of cryptocurrencies deposited into smart contracts by users (also called liquidity providers, or LPs). In exchange for their deposited cryptocurrencies, LPs receive liquidity tokens representing their contribution to the pool.
- Trading: In this trading method, individuals engage directly with the liquidity pool when initiating a trade, rather than having their buy and sell orders matched. The price for each trade is determined algorithmically based on the ratio of the two assets in the pool.
- Price Determination: Uniswap uses the ‘constant product’ formula, which means the product of the quantities of the two tokens in a liquidity pool remains constant.
- Fees: Regarding fees, in Uniswap V2, there’s a fixed 0.3% fee for each trade. However, Uniswap V3 adopts a more adaptable fee structure, where the fees collected are distributed amongst all liquidity providers in the respective pool. This serves as an incentive for users to provide liquidity. Moreover, users who contribute to the liquidity pool also receive a portion of these fees, which is proportional to their staked pool share.
- Swapping: Users can swap any ERC-20 token for another as long as there is a liquidity pool for the pair. If there are no direct pools between the two tokens, Uniswap can route the trade through multiple pools (e.g., Token A to ETH and then ETH to Token B).
Uniswap’s simplicity, combined with its permissionless and decentralised nature, has made it one of the most recognised platforms of the decentralised finance (DeFi) ecosystem on the Ethereum blockchain.
What Is the UNI Token?
UNI is the native governance token of Uniswap. Below is a summary of the UNI token and its purpose.
Features and Utilities of the UNI Token:
- Governance: The primary function of the UNI token is for governance. Holders of UNI can vote on or propose changes to the Uniswap protocol. This includes changes to its code, the fee structure, and future strategies of Uniswap.
- Liquidity Mining: Following its release, UNI tokens were distributed to users as incentives for providing liquidity to certain pools on Uniswap. This method of distributing tokens by rewarding users for supplying liquidity is known as ‘liquidity mining’ or ‘yield farming’.
- Treasury: A portion of the UNI token supply is reserved for the Uniswap treasury, which may be used to fund further developments, grants, partnerships, and other initiatives that benefit the Uniswap ecosystem.
In essence, the UNI token represents a stake in the Uniswap ecosystem. By decentralising governance and putting it in the hands of UNI holders, Uniswap aims to be a truly community-driven platform.
UNI Tokenomics
UNI has a maximum supply of 1 billion tokens, and all have been minted at genesis, becoming accessible over the course of four years. Uniswap protocol has so far released 753,766,667 of them. The initial four-year allocation is shown below:
- 60.00% to Uniswap community members (600,000,000 UNI).
- 21.266% to team members and future employees with a four-year vesting of 212,660,000 UNI.
- 18.044% to investors with a four-year vesting of 180,440,000 UNI.
- 0.69% to advisors with a four-year vesting of 6,900,000 UNI.
Where to Trade UNI
Uniswap (UNI) is listed in the Crypto.com App, joining the growing list of 250-plus supported cryptocurrencies and stablecoins, including Bitcoin (BTC), Ethereum (ETH), Polkadot (DOT), USD Coin (USDC), and Cronos (CRO).
Crypto.com App users can now purchase UNI at true cost with USD, EUR, GBP, and 20-plus other fiat currencies and spend it at over 80 million merchants globally using the Crypto.com Visa Card. Alternatively, users can also trade UNI on the Crypto.com Exchange.
Download the Crypto.com App to start trading UNI today.
Conclusion
Uniswap has revolutionised the DeFi space with its unique AMM model, providing a decentralised and permissionless platform for users to trade cryptocurrencies. Unlike traditional exchanges, it operates without an order book, with users trading directly against liquidity pools. The native governance token, UNI, empowers the community by allowing it to participate in key decisions about the platform. Its distribution through liquidity mining incentivises users to contribute to the platform’s liquidity.
Overall, Uniswap’s innovative approach and its community-driven ethos have solidified its place as a leader in the DeFi ecosystem.
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