Uniswap decentralized exchange (DEX) remains one of the best for trading and also liquidity provision. This article provides an in-depth guide on how to use Uniswap and harness the platform’s advantages.
The Uniswap platform was created in 2018 on the Ethereum blockchain, which is the world’s second-largest cryptocurrency project in terms of market capitalization. The most popular decentralized exchange (DEX) developed on the Ethereum blockchain is Uniswap.
What makes Uniswap different?
Uniswap is a different form of exchange that is fully decentralized – that is, it isn’t owned and run by a single organization – and uses an automatic liquidity protocol, which is a very new type of trading mechanism.
Uniswap is a decentralized exchange with hundreds of tokens to choose from. It supports trading of these assets through liquidity pools and is interoperable with any ERC-20 tokens and infrastructure, including wallet services like MetaMask and MyEtherWallet.
Uniswap is also open source, which means that anyone may copy the code and use it to build their own decentralized exchange. Users can even list tokens on the exchange for free. It is simply a tool for trading cryptocurrency fast and easily without the necessity of an intermediary or a third-party source.
Uniswap uses smart contracts to perform trades. Smart contracts are self-executing algorithms that are triggered when particular criteria are met. Uniswap DEX reached a milestone of $1T in trading volume as recently reported here on Coinscreed.
How Uniswap works
Uniswap is made up of two smart contracts: one for “Exchange” and another for “Factory.” When particular criteria are satisfied, these are automatic computer programs that are meant to do specified functions.
The factory smart contract is used to introduce new tokens to the network in this case, while the exchange contract handles all token swaps, or “trades.”
Uniswap, on the other hand, is the first DEX to use an automated market maker (AMM) approach rather than the open book format. Liquidity difficulties, among other things, make the open book approach less DEX-friendly. The AMM model, on the other hand, employs a liquidity pool and a constant product market maker model.
What are Automated Market Makers ?
Uniswap uses liquidity pools to make it simple for users to trade any of the hundreds of supported tokens. A liquidity pool is a crowdsourced pool of funds used to facilitate asset trading. When someone places an order, liquidity from these liquidity pools is used to complete the transaction.
This is comparable to how market makers work in the stock market. Market makers are companies who place huge numbers of orders on a stock so that it can be traded continuously. Customers can constantly make trades by putting money into a liquidity pool.
Liquidity pools are centralized versions of automated market makers. Liquidity pools decentralize and automate the process by eliminating the need for a firm to sustain trading volume. Users can also earn fees by staking their cash in liquidity pools.
How to Use Uniswap
Uniswap can be an excellent tool for staking funds and trading with complete trust and authorization. Uniswap is also incredibly easy to use, with only a few steps required.
- Purchase Ethereum on a cryptocurrency exchange
- Send ETH to your Ethereum wallet
- Connect your wallet to Uniswap
- Make a trade or provide liquidity
1. Purchase Ethereum on a cryptocurrency exchange
The first step in connecting to Uniswap is to purchase Ethereum (ETH) on a cryptocurrency exchange. Because Uniswap is built on the Ethereum network, purchasing ETH is the simplest way to get started with it.
While there are numerous exchanges where you may buy Ethereum, a handful stand out due to their low costs, user-friendly UI, and transaction speed.
Coinbase makes it simple to buy and sell cryptocurrencies. It’s also simple to move cryptocurrency across the blockchain, which will be useful in the future.
Gemini.com and Crypto.com are two alternative exchange choices. You can link your bank account to your exchange account and send money to it after you’ve created an account. The money are then used to purchase ETH.
2. Send ETH to your Ethereum wallet
Sending your Ethereum to a wallet is the next stage in the Uniswap process. A wallet varies from an exchange in that it serves as a repository for cryptocurrency, whereas an exchange facilitates the purchase and sale of cryptocurrency. MetaMask is an excellent Ethereum wallet option.
MetaMask is a cryptocurrency wallet that lets you store, send, and buy coins. Hardware wallets, such as Ledger, are also an option. You’ll be given a wallet address when you sign up for a MetaMask account.
This is the address to which you will transfer your Ethereum. Navigate to your Ethereum position on your exchange. There should be a way to send your ETH from there. Click this and paste the address from your wallet into the box. After you send your ETH, it should arrive in your wallet in a few minutes.
3. Connect your wallet to Uniswap
You can go to Uniswap’s app after you have a wallet with ETH in it. There will be an option to connect the wallet in the top right corner. Choose from the list of supported wallets available.
You should be able to log in automatically if you use the MetaMask chrome plugin. You may need to submit some information if you’re using another supported wallet. You’re ready to use the technology once you’ve connected a wallet to Uniswap.
4. Make a trade or provide liquidity
Uniswap’s two main functions are to execute trades and to offer liquidity. To make a trade, simply enter the amount of ETH and the token you want to exchange it for.
There are hundreds of currencies to pick from, so there’s a strong chance you’ll be able to locate the token you’re looking for. Navigate to the “Pool” tab at the top of the page if you want to supply liquidity and stake your coin assets.
You can choose a currency pair to provide liquidity for, such as ETH and Aave (AAVE) or Tether (USDT) and Dai (DAI). Different price tiers are available for different currency pairs, so make sure you choose a fee tier and currency pair that you are comfortable with.
Advantages of Uniswap (DEX) over centralized exchanges
- No KYC is required
- Equal Opportunity Listings
- Funds are SAFU
No Know Your Customer (KYC) is required
Because this platform is effectively a self-contained application that holds none of the traders’ funds. There is no need to collect usernames or passwords and other login information. This ensures a private and seamless user experience.
Equal listing opportunity
Access to liquidity is one of the most difficult aspects of launching a successful crypto project. Previously, you had to go through extensive and expensive centralized exchange on-boarding processes to have your coin/token trading in front of a vast volume of capital. If they approved your project application at all, you’d have to pay a hefty upfront listing charge.
Your ERC20 token’s unique contract ID can be used to buy or sell it as soon as it’s produced with Uniswap (provided someone provides tokens for liquidity).
Funds are SAFU
In 2018, the CEO of Binance coined the phrase “funds are safu,” which means “funds are safe.”
As amusing as this may appear, the issue of centralized exchanges being hacked and customers’ assets being stolen has dogged the blockchain sector since its inception. After all, it was the February 2014 hack of the Mt. GOX exchange that triggered the first significant crypto bear market.
This is likely the most significant issue that DEXs address: by providing an independent means for traders to perform what are basically peer-to-peer trades, consumers may keep control of their funds for 99% of the trading process. You won’t have to worry about hacks or exchange closures putting you out of business.