Uniswap (UNI) – All you need to know

What is Uniswap?

Founded on 2nd November 2018 by Hayden Adams, Uniswap is one of the most popular decentralised exchanges, facilitating automated transactions between cryptocurrency tokens on the Ethereum blockchain by using smart contracts: pieces of code that execute automatically when set criteria are fulfilled.

Created in September 2020, Uniswap’s native cryptocurrency, UNI, is a governance token that gives holders the right to vote on new developments and changes to the platform. This includes alterations to its fee structure and the distribution of newly minted tokens.

Sticking with the theme of decentralisation, Uniswap is completely open-source and transparent. This means that anyone could copy the code and create their own DEX, and users are even allowed to list their own tokens on the exchange for free. 

A key part of the cryptocurrency/DeFi narrative is the aim to break away from the traditional financial institutions that have some claim to have led to much of the world’s economic unrest. As a result, many Uniswap users enjoy the fact their trades are executed directly on the blockchain, whereas other crypto exchanges require users to give up their private keys to log orders on an internal database. 

Uniswap’s automated liquidity protocol is key to how the platform functions. Rather than the ‘buy’ and ‘sell’ orders you would find in traditional finance, Uniswap uses liquidity pools: separate stores of cryptocurrency tokens provided by liquidity providers (users) for rewards. This means that tokens are available anytime someone wants to make a trade, guaranteeing their liquidity.  

You can buy UNI tokens and store them in a cryptocurrency wallet just like any other token; check out our step-by-step guide to find out how.  

How does Uniswap work?

Uniswap works by using liquidity pools to allow convenient, seamless exchanges of cryptocurrencies to take place. Each pool is filled with a pair of cryptocurrencies, and users can freely exchange tokens in any pool paying a 0.30% transaction fee. The liquidity providers who lend these tokens into pools are incentivized by receiving part of this fee denominated in UNI. When liquidity providers burn their UNI tokens, they receive their portion of the pool plus any accrued fees.

Like Bitcoin, Uniswap is democratically governed. Holders of UNI tokens can contribute to development and governance decisions, influencing and voting on things like grants, liquidity pools, and partnerships.

The system is designed to run smoothly and efficiently, allowing users to exchange ERC20 tokens quickly with no central regulatory authority. Tokens are always present so exchanges can occur constantly with no hiccups, and the Uniswap platform has become so popular that spin-off platforms have been creating using its technology, such as SushiSwap.

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