Uniswap
Introduction
The Uniswap protocol is a decentralized application that allows users to easily exchange ERC-20 tokens on the Ethereum blockchain. It was created by Hayden Adams and is now being developed in open source by the Ethereum community.
Source code: https://github.com/Uniswap
Social networks: Reddit, Slack, Twitter
In this article, I will introduce you to how Uniswap works and show you how to easily trade ERC-20 tokens.
Description
Uniswap offers many advantages over traditional centralized trading platforms. It does not require KYC verification, transaction fees are low (0.3%) and users can exchange tokens directly from their wallet (MetaMask, TrustWallet…).
How it works
Uniswap contains two types of Smart Contracts: “Factory” and “Exchange
The “Factory” Smart Contract contains the registration of all tokens and the associated exchange addresses.
Each ERC-20 token is linked to an “Exchange” Smart Contract on the Ethereum blockchain that allows the exchange to take place.
Each of these “Exchange” smart contracts contains a pool of ETH and a pool of the corresponding ERC-20 token. Uniswap allows its users to exchange ERC20 tokens for Ethereum, Ethereum for ERC20 tokens, or ERC20 tokens for other ERC20 tokens.
Any user can create a liquidity pool if it does not already exist and earn a small transaction fee by providing liquidity for an ERC20 token or Ethereum.
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Uniswap uses an algorithm called the Automated Market Maker (AMM) to determine the token price. This algorithm, introduced by Vitalik Buterin in 2018, ensures that there will always be enough liquidity to make the exchange. The price of the requested token will depend on the quantity requested relative to the smart contract’s token pool.
To start, go to the official website: https://uniswap.io/ and click on “Swap Tokens”. You should see the form below.
Then connect to your Ethereum account with Metamask or TrustWallet for example.
Next, choose the “Input” and “Output” and select the “slippage”. The slippage is the price fluctuation you are willing to accept for your trade. With a 1% slippage, you are willing to receive 99 DAI in exchange for 100 USDC for example.
The duration of the transaction will depend on the amount of GAS you have selected in your portfolio. Click on “Swap” to start the exchange, you will be able to see the change directly in your portfolio once the transaction has been completed.
Market
With the development of Smart Contract on Ethereum, many decentralized exchange projects have been launched. It is important to distinguish between exchange protocols (0x, Loopring), exchange platforms (IDEX) and exchange services (Uniswap, Bancor, Kyber Network) that do not have an order book.
The charts below show the distribution of exchanges on decentralized services in July 2019.
While Bancor raised $153 million in an ICO, they are now really competing with Uniswap. Kyber Network differs from Uniswap in that their solution allows them to connect to different liquidity pools including Uniswap’s.
The key to decentralized applications and exchange platforms is liquidity, because without liquidity they are unusable. The success of Uniswap is surely due to its ease of use and efficient design.
Conclusion
Uniswap is not likely to compete with centralized or decentralized trading platforms, as it does not allow for high volume trading. It is part of the growing DeFi wave on Ethereum with two strong points: no fees for adding a new ERC-20 and low exchange fees for the user.
Moreover, unlike Bancor with BNTs, the market is truly decentralized for all ERC-20 tokens.
Therefore, it is a decentralized application that can be useful for you to exchange a small amount of ERC-20 tokens directly in your wallet at any time.
Feel free to give us your opinion about this application and share this article on social networks if you were interested.
