Uniswap is a decentralized exchange (DEX) that allows users to fund liquidity pools and generate revenue. The platform allows users to trade Ethereum-based ERC-20 tokens through a user-friendly web interface.
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With Uniswap, users can easily trade Ethereum-based protocols using a Web 3.0 wallet. This can be done without making deposits or withdrawals to a centralized managed order book. Uniswap provides users with the ability to trade without the involvement of third parties.
The Uniswap exchange undoubtedly tops the list of popular DEXs, despite competition from other exchanges. Users are just a step away from exchanging ERC-20 tokens on it without having to worry about phishing, storage and KYC protocol.
Additionally, it offers independent intra-chain transactions at low cost, all thanks to smart contracts running on the Ethereum network. Due to its underlying mechanism, the Uniswap liquidity protocol has less impact on the price of most transactions.
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How does Uniswap work?
Uniswap is a decentralized exchange, so there are no centralized order books. Instead of highlighting specific buy and sell prices, users can insert entry and exit tokens. Uniswap emphasizes a reasonable market rate.
You can use a Web 3.0 wallet, such as Metamask, to execute trades. First, select the token you want to exchange and the token you want to receive; Uniswap instantly processes the transaction and automatically updates your current wallet balance.
From a technical standpoint, Uniswap is a set of smart contracts based on the Ethereum platform, whose operation is centered on two aspects:
✅ to provide its users with a decentralized way to exchange Ethereum tokens (ETH) and any ERC-20 standard tokens without registration, storage or personal information requirements (KYC/AML);
✅ to provide its users with the opportunity to earn money by contributing their cryptocurrency assets to Uniswap’s liquidity pools. This is done by inserting tokens into smart contracts in exchange for the tokens of a given pool.
In the first case, Uniswap – like DEX – allows anyone to exchange their ERC-20 tokens using a simple, user-friendly and universal web interface that removes many of the barriers typical of traditional and centralized exchanges. To do this, Uniswap uses a special Constant Product Market Maker (or CPMM) architecture and liquidity pools through which the exchange determines asset prices and executes spot trades.
In the second respect, Uniswap works like deposits in banks: users invest tokens in liquidity pools and earn revenue from transaction fees in these pools. It is this aspect that has made Uniswap such a popular trading platform: it gives ordinary users the opportunity to make money from crypto liquidity mining, allows developers (for free and without the approval of the exchange administration) to add their tokens to the listing, and streamlines the crypto exchange – everyone in the market wins.
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Uniswap (UNI) token features
UNI is Uniswap’s native ERC-20 token. It acts as a management token for the Uniswap platform and gives all holders of the UNI token the right to vote on changes to the exchange rules – for example, updating the platform code, adding new features, changing the commission structure and distributing it among liquidity providers.
At the launch of Uniswap, 1 billion UNIs were issued, 60% of which were distributed to all existing members of the Uniswap community. The remaining 40% was distributed over four years to team members, investors and advisors. A portion of the UNI is also still distributed to community members who provide liquidity to the following funds: ETH/USDT, ETH/USDC, ETH/DAI and ETH/WBTC.
How does the Uniswap protocol work?
The Uniswap protocol is based on the principle of automatic liquidity. Instead of matching buyers and sellers, as centralized exchanges do, Uniswap uses liquid pools of assets. Each pool contains two cryptocurrencies, such as ETH and DAI, and users can exchange one cryptocurrency for the other by putting their funds into the appropriate pool.
The platform automatically calculates the exchange rate based on the ratio of assets in the pool. This ensures a more efficient and transparent exchange process. Users can also generate revenue by contributing liquidity to the pools and earning commissions on transactions.
Two other protocols were launched a little later: Uniswap v2 and Uniswap v3.
Uniswap v2 was launched in May 2020 and included features such as support for multiple ERC-20 tokens in a single pool, which improved liquidity, and the ability to provide limit orders. The update also applied oracles to improve exchange quotes.
Uniswap v3, released in May 2021, added more flexible liquidity management mechanisms that allowed users to customize price ranges for their liquidity pools and increase capital efficiency.
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Where to store UNI cryptocurrency?
You can deposit UNI cryptocurrency in the following ways:
✅ If you plan to actively trade UNI, you can leave it on the exchange. However, this is a less secure way to store it, as exchanges are prone to hacking attacks.
✅ Hardware wallet: It is recommended to use a hardware wallet, such as the Ledger Nano S or Trezor, to store UNI cryptocurrency. This is the most secure method of storage.
✅ Online or mobile wallets: You can also use online wallets such as MetaMask or MyEtherWallet to store UNI. Or any mobile wallet that supports UNI cryptocurrency.
Just make sure you keep your keys and passwords in a safe place so you don’t lose them or let anyone else get them.
Future prospects and developments of UNI
Uniswap continues to evolve and expand its capabilities. The following changes and improvements can be expected in the future:
✅ Introduction of Uniswap v4 or other versions with additional features and greater efficiency.
✅ Expansion of the ecosystem with new products and services. Such as the purchase of the NFT Genie market aggregator, through which the project has implemented and will develop NFT support in the Uniswap ecosystem.
✅ Developing voting and community involvement in protocol management.
In conclusion, Uniswap continues to develop and implement NFT support and other innovations that improve and expand decentralized trading capabilities and other DEFI features that can help you earn passive income from your investment. So, UNI is not a bad asset to invest in for income, but you should pay attention to the project’s new developments, new partnerships and innovations, as well as the overall cryptocurrency market before buying it.
