Uniswap is one of the strongest Web 3 and DeFi applications. Users from any part of the world can trade crypto without any third-party intervention.
Uniswap is a Decentralized Exchange based on the Ethereum Blockchain. Most of the crypto-trading is done through centralized exchanges like Binance, Coinbase, etc. These crypto exchanges are controlled by a central authority (the company running the crypto exchange). A traditional order book system is used for trading and user funds are controlled by these centralized exchanges.
In a traditional order book system, orders regarding buying and selling are placed in a list with corresponding total amounts placed in each other. Market depth is the open buy and sell orders for a crypto asset. Buy orders are matched with sell orders in the order book that are on opposite sides of the book having the same quantity, amount, and price of the crypto asset and vice versa.
For example, if you want to buy Polygon Matic (MATIC) for a price of $1.5 you will have to wait for a sell order to be created that matches your price, amount, and quantity on the centralized exchange.
This characteristic of centralized exchanges limits the users from carrying out crypto trading in case there is no matching buy or sell order. Making liquidity the biggest problem of centralized exchanges.
What is Uniswap?
It is the largest Decentralized Exchange (DEX) running on the Ethereum Blockchain. It also was one of the first DeFi applications to gain huge attention on Ethereum. Created on 2nd November 2018 by a former mechanical engineer in Siemens, Hayden Adams.
Since it is based on the Ethereum Blockchain, it is compatible with all ERC-20 tokens and infrastructure such as MyEtherWallet and MetaMask wallet.
V1 of Uniswap was launched in November 2018 and V2 was launched in May 2020 and V3 was launched in May 2021.
In October 2020, the average daily trading volume on Uniswap was $220 million. The traction gained by Uniswap is due to its Decentralized Finance (DeFi) application and usage.
After the launch of Uniswap several other Decentralized exchanges (DEXs) like SushiSwap, Curve, etc., have come into the picture. But Uniswap is still the topmost DEX averaging weekly $10 billion trading volume as of April 2021.
Uniswap is a fully decentralized exchange, no single authority owns or controls the DEX. It pioneered and runs on the Automated Market Maker (AMM) model. In an Automated Market Maker (AMM) model, users deposit Ethereum tokens to Uniswap “liquidity pools” and depending on the supply and demand the algorithms set market prices.
Any user from anywhere can supply tokens to Uniswap liquidity pools and earn incentives or rewards. Anyone can supply tokens, trade tokens, create tokens, and list their tokens on Uniswap.
How does Uniswap work?
Blockchain technology is leveraged and blockchain-smart contracts are used to facilitate decentralized trading of many digital assets on Uniswap. It is an Automated Market Maker as it does not follow the traditional order book system. Through liquidity pools, pairs of digital assets are swapped and the smart contracts underlying the liquidity pools automatically rebalance after the execution of every single trade. The Uniswap blockchain is constantly updated to reflect the trading activities conducted between Uniswap users.
Ways to participate in the Uniswap Decentralized Exchange are as follows:
A. Swapping of Assets via Existing Markets: Assets can be swapped on the Uniswap platform through decentralized markets that are already in existence.
B. New Market Creation: Smart Contracts can be used to create a new market to swap new pairs of digital currencies.
C. Supply Liquidity and earn incentives: Through staking agreement to not sell or trade their digital assets Uniswap users can provide liquidity to Uniswap Liquidity Pools and earn rewards in the form of UNI-governance token of Uniswap.
D. Uniswap governance participation: Users holding the UNI token have the power to partake in the Uniswap governance through voting rights attached to every UNI token issued to them.
In addition to the following, Uniswap users need a compatible digital wallet, some amount of Ether (ETH) as the gas fees have to be paid in Ether for undertaking transactions.
Advantages of Uniswap
A. Due to its decentralized nature Uniswap facilitates the decentralized exchange of many digital assets.
B. Smart contracts make transactions done through Uniswap cost-effective and more efficient.
C. Through staking and providing liquidity to the liquidity pools Uniswap users can earn Uniswap’s governance token UNI.
D. UNI token allows Uniswap users to vote on proposals related to the future and improvement of the protocol.
E. Anyone can participate from anywhere due to the decentralized governance of the Uniswap platform.
F. Funds of the users are not in control of a central authority or subject to any counterparty risk. Trading activities are directly done through both parties’ digital wallets.
G. No personal details or account sign-up is required to participate on the Uniswap platform.
Disadvantages of Uniswap
A. Only Ethereum compatible tokens can be exchanged or swapped on Uniswap.
B. Users need to pay gas fees in Ethereum (ETH)
C. Compatible and self-hosted wallets are required to participate on the Uniswap platform.
EPNS and Uniswap Collaboration
During the migration from V1 to V2 of Uniswap, significant communication and management efforts had to be undertaken as liquidity providers had to be moved from V1 of Uniswap to V2 of Uniswap. It was a successful migration but the migrations process took months.
The migration from V1 to V2 could have benefited from the Push notifications provided by EPNS directly to the digital wallets of the Uniswap users.
Through this collaboration, the need of the core users of Web 3 and Uniswap of receiving real-time push notifications will be fulfilled. The future versions of Uniswap will have a robust communication channel set in place via EPNS push notifications.
Users of Uniswap will receive notifications with regards to new digital pairs available for trading, approval or rejection of their transactions, warning and amount of the gas fees to be paid in ETH for every transaction, providing updates if there is any evidence of impermanent loss, new staking opportunities made available, amount of UNI tokens received as a reward for staking, and much more.
This collaboration will help in understanding what the decentralized applications need from the EPNS protocol. The notifications will aid the users in separating the useful signals received from the dApp from other information that will not be useful for the Uniswap users.
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