Friday, September 18, 2020


   Decentralized Exchange (DEX) or decentralized cryptocurrency exchanges are increasingly being crowded with crypto enthusiasts. One of the rising DEX among crypto enthusiasts is Uniswap.

Uniswap itself comes with cutting-edge solutions and technologies related to Decentralized Finance (DeFi) that have been hotly discussed lately. More defi projects include Uniswap which offers its users crypto asset processing facilities for profit or revenue by simply incorporating those assets into the protocol.

In this article, Coinvestasi will briefly explain what Uniswap is and how the platform works in providing revenue with cryptocurrencies to its users. 

What is Uniswap?

Uniswap is a protocol that allows buyers and sellers to exchange their ERC20 tokens without having to use an order book or other intermediary. This protocol, developed by Hayden Adams, operates by not charging platform fees or intermediary fees other than charging gas charges on the Ethereum network.

In addition, if most other exchanges determine exchange rates based on sellers and buyers in the market, the exchange rates of tokens on the platform are based on mathematical algorithm equations that will automatically calculate the balance between the two tokens and compare them with the actual demand of these exchange pairs.

Unique Features of Uniswap

Uniswap presents its own color differences in the world of decentralized exchange exchanges. This is related to uniswap's unique pricing mechanism otherwise known as the "Constant Product Market Maker Model".

This mechanism makes any ERC20 token add to the Uniswap protocol. Surely this value will be equivalent to ETH and ERC20 tokens traded later. 

In addition, Uniswap presents solutions related to liquidity problems that exist on other ordinary exchanges. The Uniswap platform provides automatic liquidity provision. Thus, it no longer relies on the buyer and seller mechanisms that usually have to exist to create liquidity itself.

So, how does Uniswap work?

How Uniswap Works
If you have a certain amount of Ethereum and want to exchange it for another altcoin such as a XXX Token, you will release a new Uniswap smart contract for that XXX Token and create a liquidity pool of those XXX tokens worth $10 and ETH worth $10.

This way of working uses the X*Y=K equation.

These X and Y represent the number of ETH and ERC20 tokens available. While K is a constant that can be regulated by exchange contract makers at Uniswap. This K value is the most important value on the grounds that the X value multiplied by Y should be equal to K.

This equation uses the balance between ETH and ERC20 tokens in pricing a particular token. For example, whenever someone buys an XXX Token with ETH, xxx token distribution will decrease while eth price supply increases. That way the price of this XXX token will go up.

This means the price of existing tokens in Uniswap may change when a trading transaction occurs. The basic point of Uniswap is to balance the value of tokens, and exchange them based on how many people want to buy or sell them.

How Uniswap Tokens Are Produced

Each time a new ETH/ERC20 token is entered or contributed into the Uniswap liquidity pool, the contributor will create a kind of "Token Pool or Pool Token", which is also an ERC20 token.

Keep in mind that Uniswap is permission less or without permission. So, each token has its own smart contract and liquidity pools. If the token has both aspects, then anyone can trade tokens or contribute to the liquidity pool.

Once everything is ready, a set of tokens will be created each time the funds are deposited into the liquidity pool within the protocol. This makes ERC20 tokens located in that token set freely exchanged, moved, and used in other dApps. 

When the funds are withdrawn, this token pool will be destroyed so that there are no more such token pools in the network. Each of these token pools represents the user's share of the total asset pools and part of the trading fee of 0.3% in those pools.

How Uniswap Makes A Profit

The profit you get if you participate in becoming a liquidity provider is from trading costs. However, you only participate in a specific liquidity pool by providing the same number of ETH and ERC20 tokens as uniswap exchange contracts. 

In return, every time someone does a swap, the swapper must pay a fee of 0.3% per swap. These costs are then added to the liquidity pool. Furthermore, liquidity providers receive a share of the transaction costs comparable to the weight they contribute to the pool.

Uniswap Advantages and Disadvantages

The development of Uniswap DeFi provides a new color within the crypto industry. Because the platform creates a new buzz related to the use of cryptocurrencies themselves. Not only that Uniswap also has a fairly new advantage to apply in this industry.

These advantages include aspects such as new tokens being able to directly access liquidity by adding their tokens to the exchange with Uniswap V2 router contracts, not only that trades are relatively low cost compared to DEX or centralized exchanges, not to which liquidity providers benefit by simply putting their funds into the liquidity pool, and of course the most basic of these platforms is decentralized.

On the other hand, surely every thing has its drawbacks. This deficiency is also owned by Uniswap as is the possibility of an attack on the flash loan/swap feature, still relies on arbitration trading to eliminate market imbalances, has a list of fake tokens due to its permission less nature, and lastly high gas prices.

UNI tokens from UNISWAP

UNI tokens were released on September 16, 2020 as governance tokens in the Uniswap protocol. The emergence of this token was warmly welcomed by uniswap users and communities themselves. Because, Uniswap then distributes these tokens free of charge to users who have put their assets into the platform's liquidity pools. 

Later this ERC-20 token will be available in the protocol with the function as a consensus token. Over one billion tokens released into its 60% network will be allocated to community members, 21.51% to "team members and prospective employees", and another 17.80% will be allocated to investors with a four-year vesting cycle.

These UNI tokens are also listed on some of the world's leading exchange platforms with several other token pairings.


Interesting isn't this Uniswap platform? If you have enough assets and want to have income from them, Uniswap can be used as an exchange platform that can provide those advantages. 

Keep in mind, too, that the use of Uniswap is still classified as high-risk asset management. Keep using your risk management and assets as best you can, learn more about the governance of uniswap. Happy trading!

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