Uniswap (UNI) is one of the most talked-about DeFi this year. No wonder! The airdrop carried out by the project developers was unprecedented. On September 17, everyone, who used Uniswap before September 1, was supplied with 300 UNI — which at that time was equal to approximately $1300, and with the growth of the exchange rate it amounted to even thousands of US dollars. There have never been such generous distributions, and the most cunning users registered backup accounts in advance. How did all this become possible, what are the reasons for the popularity of Uniswap and what to expect from it? Let's try to figure it out.
Uniswap is an automated decentralized exchange (DEX) that allows users to exchange ERC-20 tokens and Ethereum. The project was founded in the USA in 2018. As the name suggests, the mythical creature unicorn was chosen as its symbol. Looking ahead, Uniswap was expecting really fabulous profits in the future. As in other similar cases, the platform is based on the principle of the absence of any intermediary in the form of the exchanger. In 2019, the Uni protocol was updated to version 2.0, introducing some new functions, such as the exchange of one ERC-20 token for another without the participation of Ethereum itself. At some point, the trading volume of transactions on Uniswap began to exceed the same volume of traditional large exchanges like Coinbase — well, quite an achievement. By the way, it is Uniswap that spends most of the Ethereum "gas" and thus indirectly contributes to higher fees.
Standard functionality for traditional exchanges, such as orders or a verification system, is missing in Uniswap. Trading is performed through token pairs working through liquidity providers. What does it mean? Those who wish to ensure the operation of the exchange with their cryptocurrency, "freeze" virtual coins in one of the liquidity pools and receive substantial interest for their use. By the way, the exchange itself receives only 0.3% of the transaction amount. Switching between different ERC-20 tokens is almost instantaneous. The price of cryptocurrencies participating in the exchange depends on the transaction volume and dynamically alternates due to changes in their balance in the liquidity pool. The total "weight" of the pool, however, always remains unchanged. The liquidity provider receives stablecoins, the amount of which is equal to the amount of the invested funds and can get them back at any time. Thanks to all this, the market is created automatically — through smart contracts. And although within the framework of this system, strange fluctuations are possible, such as the possibility of losing money when the exchange rate rises, in general, it is quite safe and primarily encourages small-volume transactions.
One of the reasons for the popularity of this platform is its availability. Traditional exchanges are very reluctant to place new coins on their platform. Now, Uniswap is home to many successful projects — for example, yearn.finance (YFI token), which showed growth of thousands of percent. Of course, you can find outright scam projects there, “eternal losers” or “strong middle peasants.” But this is a cost of scale. Keep in mind that Uniswap is just providing a platform for different purposes and results.
Today Uniswap is an example of tremendous success — happy users, huge trading volumes. But it seems clear that its future is inextricably linked with the DeFi market conjuncture and the fate of Ethereum itself. These factors should be kept in mind when predicting the future of the whole project.
Image courtesy of: Uniswap.org