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24 February 2021

What is Uniswap? A short guide to the token swap exchange - Decrypt

What is Uniswap? A short guide to the token swap exchange - Decrypt


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Uniswap is trying to solve decentralized exchanges' liquidity problem, by allowing the exchange to swap tokens without relying on buyers and sellers creating that liquidity. .

Unlike most exchanges, which are designed to take fees, Uniswap is designed to function as a public good—a tool for the community to trade tokens without platform fees or middlemen.

Any token can be added to Uniswap by funding it with an equivalent value of ETH and the ERC20 token being traded.

For example, if you wanted to make an exchange for analtcoin called Durian Token, you would launch a new Uniswapsmart contractfor Durian Token and create a liquidity pool with–for example–$10 worth of Durian Token and $10 worth of ETH. .

Where Uniswap differs is that instead of connecting buyers and sellers to determine the price of Durian Token, Uniswap uses a constant equation:  x * y = k.

In the equation, x and y represent the quantity of ETH and ERC20 tokens available in a liquidity pool and k is a constant value.

Absolutely any ERC20 token can be listed on Uniswap–no permission required.Each token has its own smart contract and liquidity pool–if one doesn’t exist, it can be created easily.

Once a token has its own exchange smart contract and liquidity pool, anyone can trade the token or contribute to the liquidity pool while earning a liquidity provider fee of 0.3%.

Whenever new ETH/ERC20 tokens are contributed to a Uniswap liquidity pool, the contributor receives a “pool token”, which is also an ERC20 token.

Pool tokens are created whenever funds are deposited into the pool and as an ERC20 token, pool tokens can be freely exchanged, moved, and used in other dapps.

The interface even offers simple one-click solutions for purchasing pool tokens in combination with bZx token strategies. .

Uniswap V2 also supports previously incompatible ERC20 tokens like OmiseGo (OMG) and Tether (USDt), and adds a host oftechnical improvementsthat make it more desirable to use. .

This, in combination with the 0.3% exchange fees distributed to liquidity providers—and the platform’s popularity as a launchpad for popular DeFi project tokens—has seen Uniswap rise the ranks to become one of the leading DeFi platforms by total value locked (TVL)—a measure of the total value of crypto assets locked up in the platform. .

In September 2020,Uniswap launched UNI, the network’s governance token, airdropping 400 UNI tokens to every wallet address that had interacted with the Uniswap protocol before September 1.

As a governance token, UNI entitles holders to a vote in how the protocol is run, affording them immediate ownership of Uniswap governance, the UNI community treasury, the protocol fee switch, eth ENS, the Uniswap Default List (tokens.uniswap.eth) andSOCKSliquidity tokens

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