The Ultimate Guide To Uniswap : A DeFi Based DEX Exchange
What is Uniswap?
Uniswap, the well-known leader in the decentralized exchange space is quite becoming popular among the DeFi enthusiasts and also many crypto holders, traders, and lovers.
In short, Uniswap is currently the most popular decentralized exchange in Decentralized Finance which records a daily trading volume of $263M, which accounts for about 95% of all DEX trading.
This clearly shows that Uniswap plays a significant role in the decentralized exchange globe.
Uniswap, Ethereum's most popular DEX Protocol which has 38,000 daily active users allows users to swap various Ethereum tokens. This Uniswap protocol comes up with two versions, namely V1, V2, and Uniswap V2 is just the second iteration of Uniswap which includes some new improvements and trading features in the exchanges. The operations of Uniswap V1 will be continued as Ethereum exists.
Origin of Uniswap
On November 2, 2018, Uniswap was created by Hayden Adams, an Ethereum Developer along with the help of Noah Zinsmeister and Dan Robinson.
Uniswap is a result of Adam's inspiration over an equation which is known as the market maker equation, X * Y = K. This is how the DeFi Protocol Uniswap started its first waves in the crypto market.
Difference between Uniswap and Traditional DEX Platform
DEX platform relies on an order book mechanism and in Uniswap there is no order book.
In DEX, each new token must be manually listed, whereas Uniswap is available for all ERC 20 tokens.
Traditional DEX does not have pool features and but Uniswap allows users to participate in pools and gain rewards.
Uniswap does not require any deposit, gateways, or custody for your money whereas DEX requires custody.
What Makes Uniswap a Popular DEX Platform Among Crypto Traders?
Initially, the cryptocurrency exchanges are carried out in a traditional way called centralized cryptocurrency exchanges, where exchanges of cryptos happen with the presence of central authority. As days passes, and the decentralized ledger technology blockchain started to sound high and there arose decentralized exchanges to short out the problems of centralized exchanges such as mismanagement, hacking and arbitrary fees.
Since, decentralized exchanges possess their own problem known as liquidity, which refers to a lack of money flow in an exchange that makes trading faster and efficient.
Here comes a DEX platform that tries to solve the liquidity problem of decentralized exchanges, Uniswap. The Uniswap protocol creates liquidity by allowing the exchange to swap Ethereum tokens without relying on buyers and sellers. This nature of eradicating liquidity issues makes Uniswap more popular among crypto people.
The other main distinct feature of Uniswap is its pricing mechanism known as the " Constant Product Market Maker Model", which allows users to add any token to Uniswap by funding it with an equivalent value of ERC 20 token or Ethereum.
Uniswap Liquidity Pools
In any centralized exchange, the price of any asset is determined by two factors.
The highest price at which the trader wants to buy/sell that asset and
The lowest price at which the trader wants to buy/sell that asset
But in decentralized exchange Uniswap, the price of an asset relies on the exchange contracts.
In Uniswap, all the Ethereum tokens, ERC 20 tokens are kept in the exchange contract. This decentralized smart contract acts as a matching engine and makes the trades execute faster and does not wait for any desired sellers and prices of crypto assets. Thus, with this liquidity pools of Uniswap drive the price of any assets and does not use any order book to match the buyers and sellers.
How Does Uniswap DEX Work?
Uniswap is a decentralized exchange protocol that allows users to swap Ethereum Tokens securely. Uniswap decentralized exchange platform works as follows:
It does not follow the way of traditional exchanges, ie., it does not use order books, instead uses Constant Product Market Maker which is also known as Automated Market Maker (AMM).
Automated Market Makers are nothing but smart contracts or liquidity pools that hold the liquidity reserves that traders can trade.
Anyone can be a liquidity provider who funds those reserves by depositing an equivalent value of two tokens in the pool.
Finally, the traders pay a fee to the pool which is then distributed to liquidity providers based on their shares to the liquidity pools.
Thus, the functions of Uniswap relies on formula X * Y = K.
Uniswap DEX Features
Listed here are the trading features supported by Uniswap, a DeFi based DEX Platform.
The most important feature of Uniswap is that it doesn't restrict the trade of any asset pairs. Uniswap's routing technology helps you to trade your own ERC20 token with any trading pair in a short time, by accessing the liquidity pools available in the platform.
The pricing data of Uniswap is accessed in such a way that it can not be manipulated as it is immutable or resistant. DEX platforms won't depend on any centralized medium for the storage of their external data. Thus, Uniswap has its decentralized medium to store the external transaction data.
Uniswap allows users to withdraw the reserves of any ERC 20 tokens and execute arbitrary logic at no upfront cost, through flash swapping. Thus, in Uniswap you can make multi-step transactions with free constraints.
Trading of any Ethereum Tokens
In Uniswap V2, the users can trade any Ethereum-based tokens, as it does not support any listing process and charge any listing fees. Thus, in Uniswap V2, liquidity providers can combine any 2 ERC20 tokens as trading pairs.
No Custody for Funds
Uniswap has a smart contract that handles the trading and the exchange does not hold any user's funds. Since, there is no central authority to seize user funds, no requirement for KYC information to create accounts on Uniswap DEX.
No Order Book
For Price determination, Uniswap uses formulas based on token ratios and does not use any centralized order books. This method prevents price manipulation and produces reliable prices of assets.
The Uniswap charges a fee of 0.3% on each trade on its platform, this is because of the Ethereum gas fees which drive the Trading fees on the platform.
Business Benefits of Creating Own DEX Like Uniswap
Listed here are the benefits of a business individual who wishes to launch its own defi based decentralized exchange like Uniswap.
Requires less initial investment
If chosen the right DEX Development Company to build your own DEX like Uniswap.
No Middleman or Third Parties
As the created DEX is completely decentralized, it doesn't require any continuous manual input.
Can Generate high ROI
Return on investment will be obviously high since the Uniswap clone involves all functions such as staking, yield farming, liquidity pools, and more.
Liquidity at Launch
Liquidity the major risk factor of common DEX platforms, but DeFi based DEX's like Uniswap can easily overcome liquidity risks.
Guaranteed Trading Volume
Can reach more trading volume and users within a short span, as Uniswap holds 95% of decentralized exchange space.
Quick Brand Identity
As DeFi is the future of the digital globe, building your own DEX platform by leveraging DeFi protocols can make you reach huge brand visibility.
Stick With The DeFi Trends
DeFi is going to be the hot talk for at least 5 years from now. so, creating a DeFi based DEX like uniswap can help a business to stick with the DeFi Trends.
Who We Are?
We Bitdeal - Leading DeFi Development Company offers the best-decentralized finance solutions over the globe. Our developers are experts in creating decentralized platforms by leveraging DeFi open-source protocols to create DeFi based DEX platforms like Uniswap.
Our Uniswap Clone Development involves end-to-end development and deployment of Uniswap Clone Script with all necessary features and plugins to start your own DEX like Uniswap.
Feel free to catch our experts about the complete A to Z features of our Uniswap Clone Development!
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