Uniswap incentivises a global network of users to maintain an exchange where cryptocurrencies are traded.
The Uniswap software runs on Ethereum, and is a decentralisedf inance protocol. It’s used to exchange multiple crypto assets, including its own UNI.
It works like a traditional exchange, with the big difference that no one centralised entity operates or admins it. The protocol allows automated transactions between crypto tokens using smart contracts on the Ethereum blockchain.
Uniswap uses a collection of liquidity pools to facilitate trades. Liquidity providers are incentivised for maintaining the liquidity in the pool by earning a portion of the trading fees and receiving freshly minted UNI.
These pools are central to Uniswap’s operations and are each made up of equal amounts of two cryptocurrencies. Buyers and sellers trade from the liquidity pool, by taking out one token and putting in another. The total pool price stays constant, but the value of each token shifts depending on weight of trades.
The genesis of Uniswap was an idea proposed in 2016 by Vitalik Buterin for a decentralized exchange (DEX) using an on-chain automated market maker with certain unique characteristics.
A year later Hayden Adams started turning this idea into a functional product. The first version was published to the Ethereum mainnet in late 2018, with the protocol launched on the last day of the Devcon 4 conference. It quickly gained traction, leading to initial seed investment to fund work on the second version.
Uniswap v2 was launched in 2020. The new protocol enabled direct swaps between any token on Ethereum. Uniswap launched its own token UNI in September 2020.
The access to newer and less liquid cryptocurrencies on Uniswap is appealing to traders. Large transactions in a certain pool that may result in price slips of a certain token, so this can also present opportunities.
Already many wallets have already integrated Uniswap so users can trade cryptocurrencies within their ecosystem.
Investors looking to access a wide range of projects built on the Ethereum blockchain may find Uniswap of interest too.