Summary:
- What is the Uniswap Protocol and how does it work?
- Advantages of the Uniswap exchange.
- Uniswap’s past, present and future price positions.
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Uniswap protocol
Uniswap is an automated liquidity provider that operates on the Ethereum blockchain, Uniswap is also supposed to make it easier for users to exchange Ethereum (ERC-20) tokens. The Uniswap protocol does not have a central facilitator (intermediary) nor an orderbook, instead tokens are exchanged through liquidity pools that are defined by smart contracts.
Uniswap is the largest decentralised exchange (DEX) on the Ethereum blockchain. It acts as a medium of exchange for people anywhere in the world wanting to trade cryptocurrencies without a need for an intermediary. UNI is Uniswaps governance token, owning these tokens allow users to vote on any key changes. Uniswap is also one of the largest cryptocurrencies on Coinbase, in terms of market capitalization.
Uniswap was one of the first decentralised exchanges to gain any significant grip on Ethereum, and has remained one of the most popular ones. The current market capitalization of Uniswap is more than $4 billion, it has a maximum supply of 1 billion tokens and there are currently almost 719 million tokens currently in circulation.
Uniswap is powered by the Automated Market Maker model, this works by users supplying Ethereum tokens to Uniswap’s liquidity pools, thereafter algorithms set market prices based on the laws of supply and demand. An Automated Market Maker model allows users to trade digital assets automatically and without permission through the use of liquidity pools instead of using a traditional market of buyers and sellers.
By supplying tokens to the Uniswaps liquidity pools, users can earn rewards whilst simultaneously enabling peer-to-peer trading (users supply tokens to liquidity pools, create and list their own tokens or trade tokens). There are currently many tokens available on uniswap, and many are popular trading pairs, such as USDC.
Security of Uniswaps protocol
UNI is an ERC-20 token, which means it requires Ethereum to continue to function. ERC-20 defines a certain set of rules for tokens, as well as security considerations that are related mainly to the strength of the Ethereum network. Uniswap is secured by the Ethereum blockchain.
Advantages of Uniswap protocol
- Self-governing: no funds are ever transferred to a third party, there is no counterparty risk because both parties are trading directly from their trading wallets.
- Global and permissionless: there are no restrictions or borders on who can trade on Uniswap. Anyone who has internet connection and a smartphone can participate.
- Thanks to its user-friendly design, the Uniswap platform is easy to use.
- No account sign up or personal details are required.
- It is possible to swap ERC-20 tokens on the Uniswap platform. It is fast to trade any digital assets compatible with Ethereum, and seeing as quite a few cryptocurrencies are created on Ethereum there are quite a few available for trading on this exchange.
- It is possible to earn interest on Uniswap by staking tokens, through staking cryptocurrencies into Uniswaps liquidity pools, users can become a liquidity provider. Uniwaps charges fees on each crypto trade, and distributes that fee amongst liquidity providers.
- Because to connect to Uniswap users need an Ethereum wallet, Uniswap indirectly offers cryptocurrency wallet support to all the wallets Ethereum supports.
Factors that make Uniswap unique
To enable community ownership over the Uniswap protocol in their path to complete the decentralisation process, Uniswap created the UNI token. In September of 2020, Uniswap released its UNI token, the token was released using a unique form of distribution, it “airdropped” 400 UNI tokens to each Ethereum address that had ever used the Uniswap protocol. Over 250,000 Ethereum addresses received the airdrop, which was worth almost $1,400 at the time.
Buying Uniswaps UNI token
Uniswaps UNI is available for trading on many of the larger exchanges against other cryptocurrencies, stablecoins, fiat currencies and more.
Past, Present and future prices of UNI
Since its launch in 2020, UNI has seen a lot of volatility. The first few months after launching, (beginning of 2021) the price began to rise, reaching above $40 per token by during the second quarter of 2021. Since its peak, the price of UNI has been on a steady trend downwards. It is now around the same level as when it launched.
Over the past few months, the markets have been facing strong investor risk-off sentiment in the wake of the geopolitical tensions, Covid-19 lockdowns in China and supply chain issues. The cryptocurrency market has followed the trends of the greater market during these times, therefore the price of most cryptocurrencies have been falling, evidently, Uniswap falls under this category.
According to some analysts the future price of UNI could reach up to $44 by 2027. However, it is important to remember that this future price prediction is based solely on data and does not take into account factors such as investor sentiment and the ever changing market conditions, both of which make it difficult to make accurate future price predictions.
UNI Price Chart
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Sources: finance.yahoo.com, coinmarketcap.com, coinbase.com, uniswap.org, fool.com, changelly.com
