Decentralized exchange Uniswap: overview, wallet connection, cryptocurrency exchange, deposit and withdrawal features
Uniswap is a decentralized cryptocurrency exchange (DEX) that runs on the Ethereum blockchain, supporting the purchase / sale of ETH and ERC-20 tokens. It is based on technologies of liquidity pools and automatic market-making, without the usual order book, which is used by centralized exchanges. For 2022, this is a leading project among peers, with a daily trading volume of almost $ 1 billion. The editorial staff of Btcnewsweb.com compiled an overview of the Uniswap exchange and instructions for working with it.
|Official site (mirror)||https://uniswap.org/, https://app.uniswap.org/|
|Year of foundation||2018|
|Markets||Spot AMM trading|
|Working with fiat money||No|
|Other fees||Network fees for operations|
|Cryptocurrencies||ETH, ERC-20 tokens|
|Connection wallets||Metamask, WalletConnect, Coinbase Wallet, Fortmatic, Portis|
|Reference materials||https://uniswap.org/docs, |
Uniswap is a DEX (decentralized exchange), and all users, working with it, retain control over their funds at any given time. Another difference from centralized exchanges is the automated protocol for market creation. It encourages people who trade on the exchange to become liquidity providers (LPs).
Uniswap users pool their money to create a fund (pool), within which all trade transactions are then executed. Each trading pair has its own pool and users can contribute to it. The prices of all assets are determined using a mathematical algorithm.
Such a system allows you to execute transactions instantly, rather than waiting for the opposite order from the buyer / seller to appear. The only condition is that the pool must have enough liquidity to execute the transaction.
Uniswap is completely open source and anyone can grab it and use it to create their own DEX. There are two smart contracts at the heart of it: Factory and Exchange. The first is used to add new tokens to the platform, and the second is used directly for transactions.
At the moment, the third version of the protocol has already been announced. The release will take place on May 5, 2021 on the Ethereum mainnet, and a little later on Ethereum Optimism. What the new version offers:
- Concentrated liquidity. Consolidation of individual positions into a common pool, so that liquidity providers can better control the price range to which their capital is focused.
- Several levels of commissions. LPs will be able to take on one or another level of risk, and based on this, their income will be determined.
- How will this affect the development of the protocol:
- The capital efficiency for liquidity providers can be 4,000 times higher than before.
- The slippage of transactions will become even lower.
- Liquidity providers will be able to sell one asset after another, adding liquidity at a price above or below market prices.
- Reduced risk of loss of preferred assets for LPs.
- Significantly reduced the complexity and cost of integrating Uniswap oracles, eliminating the need to validate historical values.
With all this, it is assumed that transactions after the deployment of the protocol on Optimism will become significantly cheaper.
How to log in
The exchange does not require any registration or verification. However, please note that before starting work, you will need to install a wallet in your browser through which the connection will take place. The most common option is Metamask.
Click Connect Wallet.
And select the Metamask item (provided that at this point the wallet is already installed and configured).
A wallet window will appear, enter your password in it and click “Unblock”. If you have recently used the wallet, you may not need to enter a password, but simply confirm the connection.
From now on, you are connected to the protocol and can use its functionality.
Deposit and withdrawal of funds
Since the exchange is decentralized and non-custodian, you cannot start assets directly on it. All your cryptocurrency is stored in your wallet. From there you can withdraw it through exchangers or in other ways, or replenish it by purchasing assets on the exchange, etc.
When making transactions, carefully check that you are on the official Uniswap website and do not confirm transactions that were not requested.
You can trade on the Uniswap exchange from the “Exchange” / “Swap” section. It’s a very simple process: you just need to select the given and received coin, and then confirm the exchange in the pop-up window of the wallet. The operation is performed instantly.
By clicking on the gear, additional exchange settings open, including:
- Slippage tolerance (the transaction will be canceled if the value of the asset has changed by more than the specified percentage at the time of its execution).
- Deadline transaction (automatic cancellation if it was not possible to process the transaction within the specified number of minutes).
- Interface settings – activating the expert mode, limiting swaps to direct pairs only.
How to make money on Uniswap. UNI token
In exchange for placing their assets, each liquidity provider receives a token, which confirms the fact of its investment in the pool.
For example, if you contributed $ 10,000 to a liquidity pool that contained $ 100,000 in total, you will receive tokens that entitle you to 10% of this pool. This token allows you to receive income in UNI from commissions for all operations in the pool (yours and others), the commission percentage is determined from the percentage of ownership described earlier.
Uniswap charges users a flat fee of 0.30% per trade and automatically sends it to the liquidity pool. As soon as the liquidity provider decides that it wants to withdraw its assets, it receives a portion of the total fees from the reserve relative to its rate in this pool. The LP token, which stores information about the share of income, is then destroyed.
To add liquidity, you need to click the “Add” button.
Then “Add Liquidity”, and select the desired currency pair. Enter the quantity of one asset, the second will be calculated automatically at the market price. Confirm the operation in Metamask.
By doing this, you will receive liquidity tokens and immediately start earning profit from the commissions in this pool. Uniswap already has more than $ 4.19 billion in assets frozen, according to Defipulse.
Advantages and disadvantages
✅ Instant exchange without waiting, thanks to the AMM system and liquidity pools.
✅ Keeping funds with the user.
✅ Lack of verification.
✅ Support for several popular wallets.
✅ Support for any asset on the Ethereum blockchain.
✅ Low fees.
✅ The possibility of earning money on the supply of liquidity.
✅ Development and improvement of the project.
✅ Simple interface.
❌ High gas fees on the Ethereum network.
❌ Since any ERC-20 tokens are supported, there is a chance that you will stumble upon the tokens of a fraudulent project.
With the development of the cryptocurrency industry, decentralized exchanges are becoming more and more popular due to their large-scale advantages over centralized ones. Users no longer want to trust their assets and transactions to third parties, but want to control them themselves. Uniswap appeared and began to develop at a good moment, which explains its relevance. Although it is only possible to trade here assets on the Ethereum blockchain, a solution was found in the form of stablecoins transferred to this chain pegged to other currencies and values - for example, WBTC for Bitcoin, many dollar stablecoins, etc.