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What is Uniswap?

What is Uniswap?

The Uniswap protocol, one of the best DeFi-applications, is the first crypto-industry project to implement an automatic pricing method and use of liquidity pools. The platform enables direct trading of assets via smart-contracts.

Full name of the company: Uniswap Labs

Foundation date: 2018

Founder: Hayden Adams (USA)

Capitalization: more than 4.8 billion dollars

Legal status: U.S. registration


Company products

Uniswap is a decentralized financial protocol used to make cryptocurrency exchanges. It is used in open-source blockchains while providing fast, automatic transactions in the Ethereum network by using smart contracts. All changes to the protocol are implemented by voting of UNI token holders, and then the development team implements the decisions made.

The protocol combines several smart contracts by which each user can make direct trade deals with other participants on the Ethereum blockchain. Technically, Uniswap is a full-fledged decentralized exchange. There is no need to sign up and undergo verification procedures to use it; you just need to have any browser wallet that supports the Ethereum network.

Uniswap uses liquidity pools to create the most efficient markets. Liquidity providers are individuals and bots who earn a percentage of the trading fees.

Since the platform is decentralized, it has no administration involved in selecting cryptocurrencies for listing. Each user of the network can add a new asset with the ERC-20 standard, using the liquidity pool as a separate market for a particular trading pair. Creating a pool requires a certain number of new tokens and an equivalent amount of base currency of the ERC-20 standard.

Sellers and buyers do not communicate in Uniswap to set the price of the assets, as the balance between the pair's tokens and the supply/demand ratio makes it possible to implement an automated pricing process.

Uniswap features exchange-traded and factory smart contracts. The first type is needed to organize the exchange of tokens, and the second one is used to add them to the platform. Both smart contracts are automated programs that allow performing the activities mentioned above.

Token trading via Uniswap occurs by connecting any Ethereum-supporting web wallet. The user can add assets to the liquidity pool or exchange them.

It is also possible to access the Uniswap platform through DeFi-aggregators, which are special applications that collect pool data online to provide simultaneous connection to multiple decentralized protocols.

Uniswap v2 is an updated version of the protocol, which got additional features. The key distinctive point is the possibility for clients to exchange any tokens with the ERC-20 standard (in the first version, only the pair with ETH was available). The developers introduced route contracts, using which exchange operations (swaps) are optimized. Thanks to instant swaps, it is possible to withdraw any number of tokens in margin or arbitrage trading mode.

Uniswap v2 now uses oracles, which improve the quality of quotation control.

Uniswap v3 is an updated version of the protocol, which focuses on capital efficiency by introducing the concept of concentrated liquidity.

This concept is based upon the fact that large liquidity providers can choose the price range for coin supply in order to concentrate funds in the pools with the highest activity. Therefore, the risks are reduced.

Introduction of the Range Limit Orders option - in case of a set price range, whenever the price is higher or lower, a token purchase transaction is performed automatically.

Users can set liquidity in the same pool with different price ranges, even overlapping them. In addition, it is allowed to create pools with 3 different types of fees (0.05%, 0.3%, and 1%).

The Uniswap, Uniswap v2, and Uniswap v3 versions of the platform operate simultaneously, and their existence is relevant as long as the Ethereum network is running. Users do not need to transfer liquidity from one version to another. Still, switching to Uniswap v3 seems to be the most favorable, as it will concentrate the largest volume of trades.

UNI is a management token that allows owners to participate in the Uniswap management system, namely, to vote on protocol development and platform changes. The company issued 1 billion coins, 150 million of which were distributed to community members via airdrop (free token distribution).


History

2018 – in March, the team of developers led by Hayden Adams presented a demo version of Uniswap, and in November, there was the official launch of the protocol.

2019 – an investment round was held supported by Paradigm, at the end of which the company managed to raise $ 1 million for the further development of the platform.

2020 – the platform's website was temporarily shut down due to an attempted hacker attack, which proved unsuccessful. Developers unveiled Uniswap v2 in spring, and cryptocurrency exchange Coinbase invested 1 million stablecoins in USDC/ETH DEX liquidity pool. It also succeeded in attracting additional 11 million in investments from a group of companies.

In mid-year, Uniswap ranked as the leader among other decentralized exchanges, as it concentrated 37.2% of all trades in that segment.

In the fall, developers created the UNI token, which granted its holders the right to vote and take part in the network's management. The coin's emergence brought trading volume to the $245 million mark.

In December, there was the first successful vote and adoption of a grant program to fund small projects and develop the Uniswap ecosystem.

2021 – at the beginning of the year, trading volume via the Uniswap platform reached a record high of $100 billion. An updated version of Uniswap v3 was released in late spring, and layer 2 Optimistic Ethereum solutions were implemented to increase scalability and provide faster and cheaper transactions.

2022 – Uniswap protocol appeared among the top DeFi projects. All users under sanctions were blocked and not served.

The launch of Uniswap Labs Ventures to raise investments for products in various Web 3.0 segments, infrastructure startups, and blockchain development tools.

A DEX widget called Swap Widget appeared on the platform, standing as a service for developers to integrate the project's features into third-party decentralized applications.

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