Uniswap Exchange | Buy Rated Crypto Exchange | The Safest

Uniswap is one of the most interesting projects to launch on Ethereum in recent times. It is a protocol for decentralized exchange of tokens, but very different from the traditional ones seen today. Inspired by one of Vitalik’s reddit posts a few years ago, creator Hayden Adams initially sought to gain some Solidity practice. Soon after, though, this training exercise evolved into receiving a grant from the Ethereum Foundation. Uniswap Exchange is a set of smart contracts deployed to the Ethereum network, which means the entirety of this process takes place on-chain. There is no token, no centralization, and no fees going to any of the founders. The mechanics of Uniswap take some getting used to, but afterwards we’ll see that this protocol for trading tokens has some nifty advantages over traditional DEXes.

On a typical traditional exchange such as Coinbase, market makers are familiar with supplying liquidity at various price points. For example, let’s say a trader has $1,000 dollars and 10 ETH at their disposal. On the buy side, they might bid $80 for 5 ETH and $60 for 10 ETH. On the sell side, they may offer 4 ETH at $120 and 6 ETH at $140. They’ve chosen to make markets at various price points they would be happy to transact. Collectively, all of the traders’ orders comprise the limit order book. As markets move up or down, traders may or may not get filled depending on the prices they’ve specified. Typically, the ‘price’ of ETH is quoted as the mid-market between the highest bid and lowest ask.

Now imagine hypothetically that Coinbase were to take everyone’s bids and offers and pool them into two giant buckets. Understandably, a trader might not be too enthused with this idea. They wouldn’t want their orders commingled with other peoples’, or for Coinbase to execute trades on their behalf at arbitrary price points.

Yet this is essentially what occurs in Uniswap Exchange. A market maker no longer specifies which prices they are willing to buy or sell ETH at. Instead, Uniswap pools everyone’s liquidity together and makes markets according to a deterministic algorithm. This algorithm, known as an automated market maker (AMM), quotes prices to the end user according to some pre-defined rule set. An example of a very simple AMM is a bot strategy that puts bids and offers every $1 away from the mid-market price, and constantly revises the order placement as the market moves around.

Not all AMMs are the same, and different strategies come with their own sets of trade-offs. Uniswap uses a variant they call the “Constant Product Market Maker Model.” This AMM has a particularly desirable feature where it can always provide liquidity, no matter how large the order size nor how tiny the liquidity pool. The trick is to asymptotically increase the price of the coin as the desired quantity increases. While larger orders tend to suffer (as we’ll see in a moment), the system never has to worry about running out of liquidity. It will quite literally always work.

Liquidity pools — flexibility and passive income

As mentioned, liquidity pools are the basis upon which decentralized exchanges such as Uniswap can operate. Essentially, crypto investors can lock in pairs of tradable securities to earn passive income. Each successful trade using a given investor’s liquidity pays out a 0.3% transaction fee to the investor staking his or her crypto. Earning a yield for sitting on crypto assets one expects to appreciate over time is akin to free money for many long-term crypto holders.

In the case of Uniswap, investors can earn UNI tokens simply by contributing to the liquidity pool supporting this decentralized exchange. Accordingly, those banking on Uniswap’s popularity as a means of exchange in the crypto world may benefit from a broader investor base owning these tokens.

Generating passive income with any investment is a big deal. Indeed, these automated liquidity pools provide the potential for meaningful income for long-term buy and hold investors in a similar way to dividends one receives from stock ownership.

Uniswap is growing quickly

As the global crypto ecosystem continues to get built out, it’s conceivable that decentralized crypto exchanges could see volumes explode. Indeed, the fact that the global crypto market has recently approximated $2 trillion (that’s a lot of capital) suggests the influx of new investors in the crypto space could continue.

Of course, transaction volumes are a key driver of the value of the Uniswap DEX as well as UNI token. Over recent 24-hour periods, Uniswap Exchange has facilitated an average of approximately $1.5 billion in transactions. That’s every day.

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