Recently, decentralized finance has been exploding with popularity. One of the protocols, Uniswap, has been topping large centralized exchanges and now accounts for more funds locked in it than the entire DeFi sector had just a few months ago. In this beginner’s guide, ChangeHero team is going to introduce you to the current DeFi leader, explain how Uniswap exchange works and give advice on how to buy UNI.
What is Uniswap?
Centralized exchanges (CEX) are still the most popular way to buy and trade cryptocurrencies. However, they come with regional restrictions, account management and sometimes even security issues. When the second generation of blockchains that supported smart contracts emerged, developers started to look into the possibility of creating exchanges that would not have the issues which centralized exchanges had.
While many blockchain developer teams humored the idea, Uniswap managed to ship a usable product on Ethereum. It is a protocol which works as an automated market maker (AMM) that matches makers and takers (buyers and sellers). Due to the decentralized nature of the Uniswap exchange, the liquidity had to be managed automatically, too. The developers achieved this by introducing rewards to anyone who would lock their tokens in the protocol. Thus, the liquidity is not provided by a centralized entity, but by the users.
How did Uniswap Start?
The Uniswap protocol was not the first to introduce AMMs to Ethereum, but it managed to make it popular with a wide audience. It is developed almost single-handedly by Hayden Adams. Before starting his work on Uniswap full-time, he was employed by Siemens as an engineer. However, he did not even know how to code until he got laid off from his engineering job and his friend Karl Floersch introduced him to Ethereum. In 2017, he started researching it and got the inspiration for his project from Vitalik Buterin’s blog. The latter would also contribute to the Uniswap exchange by informing Adams and providing insight into making things work. By 2018, after almost two years of work, the protocol in its first iteration was released to the public.
How does Uniswap Work?
On the surface level, the protocol is straightforward. Trader chooses a pair, deposits token A and receives token B minus the exchange fee. In this regard, it is not too different from a CEX. In depth, the things look much more interesting.
An exchange usually keeps an orderbook to represent liquidity on a market. This is not the case here. Instead, using AMM, Uniswap first evaluates how many tokens a pool will receive and then gives an estimate of the price of a second token, with slippage (risk of price change) in mind.
Uniswap was also designed with interoperability in mind. Traders would want arbitrage opportunities, and for that multiple markets must exist. Moreover, DeFi is not only about trading but also lending and saving. For that purpose, Uniswap has flash swaps which are executed at no cost upfront but must either be repaid in the second token of a pair or repaid with a fee. So, the difference between an ordinary swap and a flash swap is that the fee is applied to a deposit in the former and to a withdrawn sum in the latter.
To utilize the Uniswap exchange to the fullest, some understanding about liquidity pools is necessary. To solve the liquidity problem, the users of the protocol are encouraged to contribute their assets to a liquidity pool of a pair. In return, they get passive income in the form of exchange fees on their deposit. The initial providers also indirectly set the market prices of these tokens as they are supposed to deposit both tokens of a pair in an amount of equal value.
In addition, each liquidity pool mints pool tokens in proportion to the provider’s deposit. Should they withdraw their liquidity deposit, they are required to burn the same amount of pool tokens in return.
The best thing is that the whole process is automated, from making trades to supplying liquidity and securing the network.
When does the UNI token come into play though? This is what the next section is going to be about. If you want to know how to buy UNI, keep reading until the end!
What is UNI?
UNI is the governance token of the Uniswap exchange. Its main function is to represent the voting power of a holder. With it, users can vote for or against various proposals. UNI is a ERC-20 token, which makes sense considering that Uniswap is built on Ethereum, so it needs ETH to function.
UNI was introduced in the v2 update in September 2020. The past users of the protocol received tokens for free in an official airdrop.
Uniswap plans to release 1 billion units into circulation over the next four years, and after that replace the distribution mechanic with a 2% annual inflation rate to let new users participate in the network governance. 600 million tokens will be distributed to community members, and 90 million UNI were airdropped to those who used Uniswap prior to this September.
Uniswap has been on the market for less than two weeks, but it already has a ROI of 283%. The highest price of Uniswap token so far was observed soon after the launch, on September 18: $8.39. Now (at the moment of writing) its price is $4.20. At the moment, there are 96,866,285 UNI in circulation, and the market cap of UNI is $408,373,561 (rank 41).
How to Use UNI
At the moment, as of v2, Uniswap token is used almost exclusively in governance. However, since the holders can introduce and vote for proposals, it is possible that over time other use cases for Uniswap token can emerge. Moreover, in Uniswap v3, which we will cover in later sections, UNI holders can be reimbursed for trading fees.
Is UNI or Uniswap Controversial?
Love it or hate it, Uniswap is extremely popular for another reason: to get listed on the DEX, a token does not have to undergo the due diligence which currencies that are getting listed on CEX have to. Therefore, the activity of “gem hunting” (that is, searching for a token that can pump) is pretty popular in the Uniswap community. In the end, gem hunting comes down to seeking short-term gains. Needless to say, this is why Uniswap is abundant with scam tokens or simply unfortunate disasters when a token price skyrockets and dumps in mere hours.
Another event which might have a negative effect on the reputation of Uniswap is the recent KuCoin hack. Since Uniswap does not implement any KYC policy, it is easy for hackers to move stolen assets to Uniswap, exchange them to “clean” tokens, and thus launder the money they stole.
What are the future plans of the team?
This August, Uniswap finished its funding Round A. The developers received $11M from Andressen Horowitz, Union Square Ventures, Paradigm and other investors. The funds will be put into work on Uniswap v3.
For now, the developers are keeping the details of an upcoming update a secret, probably because of the responsibility to their investors. However, some of these new features are already getting teased by the devs. Check out the next section for info!
UNI Talk on Twitter
Uniswap becomes first DeFi protocol to hit $2 billion in total value lockedhttps://t.co/0t1ILmwARl
— The Block (@TheBlock__) September 28, 2020
According to DeFi Pulse, Uniswap is the leading DeFi protocol at the moment, and the only one to have more than $2B total value locked (TVL). The outlet The Block reported this piece of news as a story on the growth of the DeFi sector.
Sold $UNI below $4 ?! ??
UniSwap v3 teaser :
* Limit orders
* ZK-Rollup scaling
* zk-SNARKs integration & front-running protection
* Fee distribution & reimbursement to $UNI holders
NDA keeps me from talking about a dozen more mind-boggling improvements so stay tuned! ?
— Merkle Tree (@merkle_tree) September 23, 2020
Ethereum developer Merkle Tree hints at what’s to come in Uniswap v3: additional privacy with zk-SNARKs implementation, limit orders and more utility for Uniswap token. The latter might get picked up by all the news about the updates to Uniswap exchange, so obviously, crypto Twitter is enthusiastic for more news.
Uniswap is the predominant, native exchange for a emerging decentralized asset class with world-changing potential, on the Internet of Value that is Ethereum.
And you’re trying to figure out if you made a mistake by selling your $UNI-drop at $3-5.
The answer is yes, you did. ?
— DCinvestor.eth ⟠ aftab.eth (@iamDCinvestor) September 19, 2020
But even now, Uniswap exchange is providing great value to the whole crypto space, as @iamDCinvestor says. However, he underlines that his point of view applies to long-term investment, so he won’t give any predictions for the near future.
If you’re a crypto trader that hasn’t traded on Uniswap/DEX, you’re doing yourself a disservice.
I’m guilty of this.
We’re privy to an exciting and developing ecosystem.
Even if it’s not to make a ton of money/don’t have an edge, trying out the tech is worth it in itself.
— Cred (@CryptoCred) September 20, 2020
Trader @CryptoCred admitted that for a long time he was not too interested in using a DEX, especially the Uniswap exchange. However, if you are in crypto for the revolutionary technology and innovations in finance, there is no excuse for not at least trying out the protocol that is breaking all kinds of records in just weeks. Just the other day, there was an argument on crypto Twitter when Larry Cermak criticized the Coindesk journalists for doing exactly that.
How to buy UNI?
Of course, Uniswap token is available for trading on major exchanges (Binance, OKEx and Coinbase Pro) against other cryptocurrencies, stablecoins, fiat currencies and more.
Naturally, users can also get in from Uniswap’s protocol itself. However, trading on a DEX takes a bit of prior knowledge, and trading on CEX comes with the hassle of creating an account and depositing funds into an exchange’s custody.
How to buy UNI without these hurdles? Use ChangeHero! It’s extremely easy and you can trade it against any currency supported by the service. We are serious about AML compliance, so tainted funds will not end up on your address, and our KYC policy is selective and optional. Besides, you do not need to deposit more than you are going to exchange, so no funds will be lost, as ChangeHero is a non-custodial instant cryptocurrency exchange.
Where to Keep UNI?
As it was previously mentioned, UNI is a ERC-20 token. It is currently supported by most wallets, from the go-to ETH/ERC-20 wallets MEW (MyEtherWallet) and MetaMask to hardware Trezor wallet.
- Trezor is a great option for active Uniswap exchange users. With Trezor Beta client you can also swap and buy UNI with ChangeHero’s instant exchange option.
- Another option for a robust portfolio would be Exodus wallet. It has a huge list of supported assets, including UNI, as well as a similar built-in exchange option powered by ChangeHero. With it, Exodus users can buy UNI right in their wallet.
How to exchange UNI with ChangeHero
How to buy UNI using ChangeHero? In five simple steps:
- Choose the currencies on the home page, amounts and the type of exchange. Provide your UNI wallet address in the next step and check the amounts;
- Send in a single transaction the sum of cryptocurrency you will be exchanging. For Fixed Rate transactions you have 15 minutes before it expires;
- From here on, you won’t need to do anything. At this step we are doing all the work: checking the incoming transaction and doing the exchange as soon as it arrives;
- As soon as the exchange has been processed, your UNI is on the way to your wallet. Congratulations, it’s done! You may even leave a review for us?
Our support Heroes are always there for you in the chat on our website or through the email: [email protected].
The last few months have been a very exciting time to be in crypto. Uniswap exchange is breaking new grounds, and its value is sure to grow from now on. Will it manage to keep its decentralized and unstoppable nature in the face of the challenges presented by bad actors and regulators? We will have to see. For now, to stay in the loop of the latest crypto news and projects, subscribe to us on Twitter, Facebook, Reddit and Telegram.