Cryptocurrency investors usually make trading accounts on centralized exchanges but some decentralized exchanges such as Uniswap have gained popularity. This article is about Uniswap and its features.
What is Uniswap?
Uniswap is a decentralized exchange hosted on the Ethereum blockchain. This is governed by UNI token holders. Uniswap blockchain is open-sourced and permission-less network. This exchange enables Peer-to-Peer trading. The native currency of the exchange is called UNI token.
P2P trading service on the DEX means that it can operate without third-party or centralized trading platform. Developers can view and reuse the source code of Uniswap. At the same time, investors can participate in trading and market making activities on the DEX without registration.
How does Uniswap Work?
Uniswap is a decentralized exchange hosted on Ethereum blockchain. It means that the token uses the local standardization called ERC-20. Therefore, the DEX list and supports any token that is also an ERC-20 token.
Uniswap also has smart contracts that are used to create and operate on the Automated Market Makers or AMMs. The investors on the platform can build liquidity pools or become liquidity providers for various digital currencies.
Smart contracts in Uniswap bring automation to the trading process. At the same time, Uniswap has smart contracts to avoid liquidity issues that can plague centralized trading platforms.
At the same time, Uniswap grants users complete financial autonomy by offering self-custodial wallet support. At the same time, transaction charges on the decentralized trading platform are smaller in comparison to the centralized exchanges.
How to Use Uniswap Exchange?
Here are some important features that investors can access when using the decentralized exchange platform:
Creating Liquidity Pools
Uniswap has smart contract support such that investors can use it to generate new markets for introducing new pairs of currency exchanges.
It can be useful for investors who wish to find options for converting from one given token to another without having to create a verified trading account on regulated crypto exchanges. At the same time, it also brings more liquidity for various crypto coins.
Swap Virtual Currencies
Investors may be able to swap one type of cryptocurrency with another by using Uniswap. It is possible by accessing the decentralized liquidity pools that are available on the trading platform that are already created.
On the other hand, Uniswap can also offer staking services that allow investors to lock their cryptocurrency reserves for a specified period. The investors can earn yield income in the form of new virtual coins that they can use to perform yield farming.
On the other hand, the community gets more liquidity for the cryptocurrencies that are trading with. Investors may also earn staking rewards in the form of UNI tokens that increase their utility and value.
UNI is governance token that allow the investors to run this exchange in a democratic manner. Holders can cast vote on new update and other administrative changes taking place on the platform. The voting power of a UNI holder depends upon their total balance.
Advantages of Uniswap
- Investors can access a wide array of cryptocurrencies on the decentralized exchange without going through hefty registration process.
- Smart contracts on the platform enable cheaper and efficient trading options.
- Staking services on the platform allow users to earn UNI coins by opting to not sell their crypto reserves for a predetermined duration.
- Decentralized governance on the platform ensures community participation.
- Uniswap brings more liquidity to various cryptocurrency projects with features such as swaps and AMMs.
Disadvantages of Uniswap
- Uniswap token only supports tokens that are ERC-20 token compliant.
- Investors must have ETH to settle transaction fees on Uniswap.
- Uniswap users need to have an existing wallet account or custodial services provider to trade currencies on the platform.
- Uniswap investors may encounter suspicious digital tokens that can lead to scams and exploits.
Investors may also access decentralized exchanges such as Uniswap through their centralized exchange accounts. At the same time, Uniswap is also accessible for investors with third-party wallets such as MetaMask and hardware wallet projects such as Ledger and Trezor.