Decentralized exchanges (DEXs) are among the largest categories of the DeFi industry by value and trading volumes. They have revolutionised crypto trading and have grown to be viable competitors to centralized exchanges (CEXs) like Binance or Coinbase.
Uniswap (UNI) is an Ethereum-based protocol that has been at the forefront of the DEX model adoption. By now, it is hard to imagine the DEX world without this platform. Whenever someone mentions decentralized crypto trading, Uniswap is often the first name that comes to mind.
What Is Uniswap (UNI)?
Uniswap (UNI) is probably the best-known DEX in the crypto world and one of the first platforms to adopt the Automated Market Maker (AMM) trading model. By now, the AMM model pioneered by Uniswap has become the dominant trading setup in the DEX industry.
Uniswap offers crypto coin swaps, staking, and various yield farming opportunities via its liquidity pools. The DEX offers a variety of cryptocurrencies unmatched by any other direct competitor. While the Curve (CRV) DEX is the largest competitor of Uniswap, it is mostly specialised in stablecoin swaps. In contrast, Uniswap offers a wide variety of coins of every type.
Listing a new coin on Uniswap is completely free, which is one of the reasons for the platform’s popularity and wide choice of cryptos.
Crypto traders may provide liquidity to the wide range of Uniswap pools. Liquidity providers (LPs) earn a share of profit based on the transaction fees charged by the protocol for that specific pool/swap pair. LPs must contribute an equivalent value in both coins to a swap pool.
The standard fee for the majority of swap pairs is 0.3% of the transaction amount. This fee is distributed to LPs based on their share of the funds currently held in the pool. For instance, an LP who has contributed 1% of the pool’s total funds will receive 1% of the 0.3% fee collected by the protocol for each swap operation.
Some swap pairs have transaction fees lower or higher than the standard 0.3%. For example, some pools with less risky or volatile coins have a fee of 0.05%. Cryptocurrencies in these pools are less likely to experience sudden drops in their market price while LPs keep their funds locked in the pool. As such, LPs earn lower fees from these pools due to carrying less risk.
On the other hand, pools with highly volatile coins may have fees as high as 1%. LPs are rewarded with higher returns from these pools due to their exposure to higher risk.
Besides the transaction fees paid by users for coin swaps, another important fee to take into account is the gas fee payable to the underlying Ethereum blockchain. Gas fees are charged by Ethereum for every transaction that happens on the blockchain.
As such, the gas fee affects both LPs and those who swap coins. The former pay the fee when they add or remove funds from a pool, while the latter pay it for each coin swap.
Uniswap has a governance token, UNI, that may be used by its holders to participate in votes on rule changes and the future direction of the protocol. UNI does not have a transactional or utility function. In fact, Uniswap operated without a native crypto token for its first two years on the market.
UNI was one of the first cryptocurrencies on the market with a specifically defined governance function. Among the DEX cryptos, UNI is the absolute leader by market cap ($4.3 billion), well ahead of the runner-up, SNX ($773 million).
In addition to being the highest-capped DEX token, UNI is also the market leader among governance tokens - cryptocurrencies whose main function is to let their holders participate in the crypto platform’s management.
UNI has a maximum and total supply of 1 billion. Of this amount, around 753 million is in circulation.
Uniswap’s History and People Behind the Project
Uniswap was founded in New York in February 2018 by engineer Hayden Adams. The protocol was launched on Ethereum in November 2018.
Over the years, there have been some improvements and upgrades implemented on the platform. Uniswap’s first major upgrade, Uniswap version 2, was released in May 2020. The current version, Uniswap 3, was launched in May 2021.
Uniswap is one of the oldest and most prominent DEX platforms in the industry. Few platforms in the crypto world can match its footprint in the DeFi industry as well as in the wider crypto sector. The largest DEX token, the largest governance token, the pioneer of the now dominant AMM trading model for DEXs – all these are Uniswap and its crypto, UNI. Given the token’s massive industry prominence and time-tested ability to retain leadership spots in multiple categories, many crypto investors regard UNI as an ultimate HODL asset. When crypto investors decide to stop being boring and venture beyond Bitcoin and Ethereum, UNI is often one of the top options considered.