UniswapApp And DeFi: What Is Uniswap?

Uniswap is a unique type of exchange that‘s fully decentralized – meaning it isn’t owned and operated by a single entity – and uses a relatively new type of trading model called an automated liquidity protocol.

Uniswap is an example of one of the core products in the DeFi ecosystem, the decentralized crypto exchange, or DEX. DEXs aim to solve many of the problems of their centralized counterparts, including the risk of hacking, mismanagement, and arbitrary fees. However, decentralized exchanges have their own problems, mainly lack of liquidity—which means a lack of amount of money sloshing around an exchange that makes trading faster and more efficient.

When and who created Uniswap?

Uniswap was created by Hayden Adams. Its initial version was published to the Ethereum mainnet on November 2, 2018.

The protocol was launched on the last day of the Devcon 4 conference and it quickly gained a lot of traction, resulting in an initial seed investment to fund work on the second version.

Uniswap V2 was launched in May 2020, and in September the new crypto token called UNI was launched.

Is UniSwap open source?

Uniswap is also completely open source, which means anyone can copy the code to create their own decentralized exchanges. It even allows users to list tokens on the exchange for free.

So here comes the noteable difference, mostly exchange charges high fee to list new coins. 

How Uniswap works?

Uniswap runs on two smart contracts simultaneously, an ‘Exchange’ contract and a ‘Factory’ contract.

These are essentially automatic computer programs designed to perform specific functions when certain conditions are met.  In other words, it could be described as an automated liquidity protocol.

It is powered by a system of non-upgradeable smart contracts, on the Ethereum blockchain.

What is unique about Uniswap?

Uniswap’s main distinction from other decentralized exchanges is the use of a pricing mechanism called the “Constant Product Market Maker Model.”

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 an altcoin called Durian Token, you would launch a new Uniswap smart contract for 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. This equation uses the balance between the ETH and ERC20 tokens–and supply and demand–to determine the price of a particular token. Whenever someone buys Durian Token with ETH, the supply of Durian Token decreases while the supply of ETH increases–the price of Durian Token goes up.

As a result, the price of tokens on Uniswap can only change if trades occur. Essentially what Uniswap is doing is balancing out the value of tokens, and the swapping of them based on how much people want to buy and sell them.

How are Uniswap tokens produced?

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. When funds are reclaimed, the pool tokens are burned or destroyed. Each pool token represents a user’s share of the pool’s total assets and share of the pool’s 0.3% trading fee.

Some Uniswap Protocol Analytics: 

Total Trade Volume: $386B

All Time Users: 1.5M+

All Time Trades: 61M

Community Delegates: 8400+

How Uniswap is Governed?

The Uniswap Protocol is governed by a decentralized community of UNI token holders and their delegates who propose and vote on upgrades to the protocol.

How Many Wallets Services are Supported by Uniswap?

By now following ways you can connect your wallet with Uniswap: 

  • Metamask
  • WalletConnect
  • Coinbase Wallet
  • Formatic
  • Portis


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