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Blockchain technology refers to the little legos that create a ledger surrounding all cryptocurrency transactions. It's the backbone of why cryptocurrency has become so popular and even looks like one in most illustrations. As you dive deeper into understanding the process, one keyword that will keep repeating itself is "decentralized."
Decentralized finance (DeFi) is a growing sector of the cryptocurrency industry. The idea is to be completely separate from institutions such as banks and separate value from any government-backed currency. Providing several benefits, this idea is gaining momentum and there's no reason why you wouldn't be interested in joining the crowd.
One of the most popular decentralized exchanges is Uniswap. Keep reading to find out more about decentralized exchange and how you can become successful with the help of Uniswap!
Background on Ethereum
There are over 13,000 cryptocurrencies and you've likely heard of the "king," Bitcoin. However, Bitcoin might be looking at its largest threat, Ethereum. They have the potential to take over as the cryptocurrency with the most market value.
Ether (ETH) is their form of currency and people buy it up like crazy. Unlike Bitcoin, Ether has no cap and can help you continue to make a steady income all year long. Uniswap is hosted on the Ethereum blockchain.
What Is Uniswap?
Uniswap is an automated liquidity protocol and operates using two smart contracts. It is one of the most popular decentralized exchanges or DEX. You can become a liquidity provider for a pool on this protocol and swap for other currencies.
What Are the Features?
There are two main features when it comes to Uniswap. This includes a swap and a pool.
A Uniswap Swap lets users exchange ETH currency for other ERC20 tokens.
A Uniswap liquidity pool lets users earn by providing liquidity. Users earn by depositing tokens into the pool. In return, they receive pool tokens.
A Beginner's Guide to Swapping
Using Uniswap is pretty simple. In the next few paragraphs, we'll dive into how to use Uniswap and some of the advantages and disadvantages.
Wallets
Cryptocurrency wallets are supported by browsers and allow their users to retrieve and store digital assets. It can be used to execute transactions. MetaMask, WalletConnect, Coinbase Wallet, Portis, and Fortmatic are all accepted wallets on Uniswap.
Using the Swap Feature
This liquidity protocol gives you access to swap ERC20 tokens. After you have connected your choice of cryptocurrency wallet, you can begin swapping coins.
Open the Swap tab and choose the amount of ERC20 tokens you would like to exchange. You'll then choose the tokens that you would like to receive in exchange for your input tokens. Remember that your tokens are listed under "from" and you will receive the tokens you choose under "to."
If a token you want is not on the list, you can type in the address of the token manually. After you have chosen your desired transaction, Uniswap will display an estimate. This estimate shows the number of tokens you will receive in the form of the new currency after the swap is completed.
Click Swap to continue. The next page will display a couple of different things to take note of. This is the confirmation page and you should pay attention to these before continuing:
- Minimum Sent: This is the guaranteed amount of tokens you will receive. In case the price was to drop during processing, you know that you will get at least this set amount. Make sure that you can live with this number because this may happen. Any amount you lose that doesn't meet your original confirmed estimate is referred to as slippage.
- Amounts: Verify that you have the correct amounts to swap to and from.
- Liquidity Provider Fee: This generally sits at 0.03% of the transaction amount.
- Price Impact: The difference between the price estimate given and the market price.
Analyze all of these notable information fields and if you are pleased with this swap, you can hit confirm.
Gas Prices
The next window that will pop up will be from your wallet. Here you will confirm the gas price. This is normal of Ethereum. This cost is simply the cost to perform the transaction and is set by miners.
Miners have the right to decline the process of your transaction if it does not meet their standards.
Liquidity Pools
Uniswap's liquidity pools are a great way to earn. These are pools of various tokens and they sit inside of smart contracts.
To do so, you will have to deposit an equal value of ETH and another token to participate. Your funds will then be supplied to others who are interested in trading those currencies. As they trade, there will be changes in the ratio of the two currencies that belong to you.
The entire concept is known as AMM or automated market making. If one of your currencies decreases by 20 then the other should increase by 20.
Remember when we talked about the liquidity provider fee when swapping? This fee is distributed based on investment proportions to all of the providers of a smart contract. When you are swapping, you are paying each provider a fee to use the funds they have invested.
The Big Reasons Why Uniswap Is Thriving
As mentioned, Uniswap is one of the most popular decentralized exchanges and for a few good reasons! In the world of DeFi, there are a lot of smart people who know the value of this system.
Full Custody of Your Funds
You will always have full custody of your funds. The risk of a centralized exchange is eliminated. In a traditional centralized exchange, you would have to fear that the exchange may be hacked or go bankrupt causing you to lose assets.
No KYC (Know Your Customer) Process
Since you never give up ownership or responsibility for your assets, you do not have to give up your personal information. This includes your name, passport information, and more.
It is much quicker and easier to get started earning money and making swaps. You also don't have to worry about having your details getting stolen or hacked because you never disclosed them.
Newest Coins
Centralized exchanges, DeFi, and cryptocurrency projects often have a lengthy process for gaining approval to trade. With Uniswap, considering its decentralized nature, they allow projects to be listed automatically. That means you have access to the newest tokens quicker.
This also allows there to be insane price fluctuations. It may be important for a trader to be there when a new token launches because of the ability to get the greatest value.
Low Fees
Most decentralized exchanges charge fees. However, Uniswap's flat fee of 0.03% is much cheaper than other options.
The Disadvantages of Uniswap
Everything has its pros and cons. Here are the downfalls of Uniswap.
Fake Coins
While this is an added aspect of an advantage we mentioned, anyone can list tokens on Uniswap. There are scammers everywhere on the internet and here is no different. People will list fake coins to trick you into sending assets in exchange.
Remember that transactions are irreversible and you can not get assets back once you have sent them. You can verify coins on Coingecko. Simply search the coin on their site. After you've located the token, go to the bottom of the page and click on Uniswap. This will redirect you back to Uniswap.
Transaction Failures
Transactions do have the potential to fail. There are a few reasons this can happen.
- Gas Fee: You opted to pay a gas fee that was too low and did not meet the requirements of the miner.
- Maximum Price: You specified a maximum price that you would be willing to pay in exchange for another token. However, this could fluctuate during processing and if that is the case, it will fail.
- Insufficient Liquidity: The pool does not have sufficient funds to cover your transaction.
Facts About Uniswap
To give you more of an idea about how popular Uniswap has become, there are some numbers to consider. These numbers are constantly changing but you can check them at any time. As of early September 11, 2020 Uniswap hosted $629.6 million in USD. That number has been in the billions over the past week.
Uniswap also has a locked value of 1.7 million ETH as of September 11, 2020.
| Platform | Interest Rates (APY) | |
|---|---|---|
| Nexo | Up to 7% on BTC Up to 12% on Stablecoins ... 36 more coins | |
| OKX | Up to 5% on BTC Up to 0.08% on Stablecoins ... 163 more coins | |
| YouHodler | Up to 3.05% on BTC Up to 8.33% on Stablecoins ... 56 more coins |
Come on in: The Water Is Fine With DeFi
This is your chance to dip your toes into the world of DeFi. Uniswap makes it super simple and now that you have a comprehensive review of this popular protocol, you'll be off to the best start. Growing your wallet is only a few steps away.