The Uniswap (UNI) token is one of the most discussed crypto in 2021. This is due to the active development and popularisation of decentralised finance (DeFi). DeFi refers to the range of blockchain services that can form an alternative to centralised ones, particularly banks. DeFi allows trading, lending, insurance – all these activities can be done without intermediaries, much faster and cheaper.
About the project
Uniswap is a decentralized exchange (DEX), working on the principle of liquidity pools and automated market-maker. Prices on it are set algorithmically, using mathematical formulas, and transactions are made through smart contracts.
How an exchange works:
A liquidity pool contains assets of a particular trading pair, such as ETH and DAI. These assets are contributed by the users themselves, who are called liquidity providers.
When a user makes a transaction, the funds are withdrawn from the liquidity pool. A share of the protocol fee for the transaction is paid to those who provide the liquidity.
In order to trade, one must connect via web3-wallet, select the desired trading pair and enter the amount of currency to be given away.
Uniswap will immediately calculate the amount that the trader will receive in return. Keep in mind that each transaction not only requires payment of a protocol fee, but also a fee to the miners – in the Ethereum network, the fees are referred to as a gas fee.
Uniswap runs on the Ethereum blockchain, so gas fees are paid in ETH. The problem is that Ethereum is overloaded because of its high demand. This increases fees and payment processing time. The commission depends not on the transaction amount, but on the congestion of the network, so small amounts are not profitable to trade – it makes no sense to pay $30 for a $50 transaction.
At the time of writing, there is already a third version of the protocol in operation. Each new version brings fundamental changes for the users’ convenience and benefit. With the launch of Ethereum 2.0 tentatively in 2022, the protocol will adapt to the new faster network.
On September 16, 2020, Uniswap announced the launch of its own token, UNI. Interestingly, some of the tokens were distributed retrospectively. That is, every trader who had used the protocol at least once before 1 September received 400 UNI – on the day of the announcement that amounted to about $1200. In total, assets were distributed to more than 50,000 Ethereum addresses, making this one of the largest Airdrop in history.
In just a few days, UNI tokens were actively traded on both centralized and decentralized exchanges, and later appeared in exchangers. Such exchanges can be found using BestChange.
Four years after the launch, a constant inflation rate of 2% per year will be introduced. This should stimulate further participation in the development of the UNI passive holders protocol. In addition, Uniswap has launched incentivised liquidity pools that reward liquidity providers with additional UNI tokens. This has shown very good results in attracting liquidity.
Token holders can participate in the management of Uniswap, including voting on the addition of new incentive pools and other offers. If desired, their votes can be delegated to someone. With the launch of the token, the team has taken a step towards decentralising the protocol – so that, over time, it will become a self-sufficient financial infrastructure on a public basis, while maintaining the security and autonomy of the protocol.
Uniswap has already realised most of its planned potential. It is the leader in popularity and trading volume among exchanges with an automated market maker in the industry. Most Ethereum investors agree that it is a convenient option for asset management. In addition, the project’s attempts at decentralisation and open governance have helped garner loyalty among supporters of the blockchain ideology who oppose centralised cryptocurrencies. The protocol has limitations – there is no ability to trade assets that are not part of the Ethereum chain. And the exchange is also burdened by high fees due to high network congestion, which raises the entry threshold for small investors.