Uniswap

Uniswap was created on November 2, 2018 by Hayden Adams, a former mechanical engineer at Siemens (he received $100,000 from the Ethereum Foundation to build the DEXDEX).

Uniswap runs on two smart contracts; an “Exchange” contract and a “Factory” contract. These are automatic computer programs that are designed to perform specific functions when certain conditions are met. In this instance, the factory smart contract is used to add new tokens to the platform and the exchange contract facilitates all token swaps, or “trades.” Any ERC20ERC20-based token can be swapped with another on the updated Uniswap v.2 platform.

Uniswap is a cryptocurrency exchange which uses a decentralized network protocol. Uniswap is also the name of the company that initially built the Uniswap protocol. The protocol facilitates automated transactions between cryptocurrency tokens on the EthereumEthereum blockchain through the use of smart contracts. As of October 2020, Uniswap was estimated to be the largest decentralized exchange and the fourth-largest cryptocurrency exchange overall by daily trading volume.

Uniswap is based on an idea that the Ethereum founder Vitalik ButerinVitalik Buterin had in 2016.

Until UniswapUniswap became a thing most exchanges handled their trades with an order-book that matched buy and sell orders, but they had a problem with illiquid assets because there was no incentive for market makers to provide their liquidity. UniswapUniswap solves this by allowing everyone to become a market maker by adding their tokens in a pool and it rewards them with the collected trading fees.

The UniswapUniswap company received investments from venture capital firms including Andreessen HorowitzAndreessen Horowitz, Paradigm Venture Capital, Union Square Ventures LLCUnion Square Ventures LLC and ParaFi. Uniswap’s average daily trading volume was US$220 million in October 2020. Traders and investors have utilized Uniswap because of its usage in decentralized financedecentralized finance (DeFi).

The first version (V1) of the Uniswap protocol was published in November 2018 as a proof-of-concept for AMMAMMs (Automated Market Makers). Version 2 was launched in May 2020, and Version 3 was launched in May 2021, introducing new options to allocate liquidity within a certain price range.

Since Uniswaps success there has been a big revolution in the entire DeFi market. That is partly because dApps and developers of new projects can utilize a DEXDEX to launch a new token or to let their application make trades while staying completely decentralized. A lending protocol for example can use a DEX to sell the provided collateral of a failed DeFi loan to cover the outstanding debt. Applications can also have a buy back and burn mechanism where a part of their fees is being used to buy their governance token back from a DEX to destroy them. A decentralized exchange is a necessary infrastructure for a DeFi ecosystem.

Another benefit of Uniswap is the ability to list any token for free. It is enough to launch an ERC20 token on the EthereumEthereum blockchain, and it will immediately be possible to trade through Uniswap. Centralized exchanges use a lengthy listing approval process and may charge a fee for adding a token to their platform.

Uniswaps native token, UNI, is known as a governance token. This gives holders the right to vote on new developments and changes to the platform, including how minted tokens should be distributed to the community and developers as well as any changes to fee structures. The UNI token was originally created in September 2020 in an effort to prevent users from defecting to rival DEX SushiSwapSushiSwap. One month before UNI tokens launched, SushiSwap – a fork of Uniswap – had incentivized users from Uniswap to allow SushiSwap to reallocate their funds to the new platform by rewarding them with SUSHISUSHI tokens. This was a new type of token that gave users governance rights over the new protocol as well as a proportionate amount of all transaction fees paid to the platform.

UNI is supported by every bigger exchange like BinanceBinance for example. Of course Uniswap itself offers it too. A EthereumEthereum wallet like MetaMaskMetaMask can store the token and interact with the Uniswap app.