Overview
Understanding the concept in simple words is not an easy task but uniswap is a platform that provides a platform to crypto users to exchange their ERC-20 Based token with Ethereum as well as ERC-20 inside the liquidity pool. Uniswap is a decentralized financial exchange tool based on the Ethereum blockchain. Uniswap launched its token that is called as UNI in September 2020 with an airdrop to anyone who used the protocol before its launch.Now a days uniswap v3 is popular and it added new features including concentrated liquidity and many more fee tiers.
About Uniswap
Let’s go down the lane & have a look over what it justifies within itself.
Referring to the automated provision being provided on the Ethereum blockchain platform, UNISWAP describes it as a decentralized exchange trading protocol.
- The founder of Uniswap is Hayden Adams, he’s inspired by ethereum founder Vitalik Buterin to create a protocol by a post made.
- Especially Uniswap trying to solve DEX’s liquidity problem, by allowing exchanges to swap tokens without relying on sellers and buyers creating that liquidity.
- Uniswap was separated from other DEX protocols due to its CPMMM mechanism that is called the Constant Product Market Maker Model.
- Generalizing the facilitation of the services provided for the developers, liquidity providers, and traders.
- Seemingly powered by a constant product formula and follows the execution within the system of smart contracts on the Ethereum blockchain on a specific basis.
- Being built on the base of several defining factors UNISWAP showcases leading to numerous deviations wisely including censorship resistance, trusted intermediaries, security, and decentralization.
- This particular protocol emphasizes the decentralization of the trading pairs which comprises reserves including 2 tokens on an equalizing ratio of 1:1 but the two being managed by the UNISWAP contracts as a result of which the model indicates or puts forth any user to become a Liquidity Provider- L.P.
- The clarifications become much more detailed about anyone’s participation and the requirements for an LP by reciprocating the equal value of every token in return for pool tokens.
- AMM is a tool that is known as the automated market maker model, due to AMM uniswap rejecting the other traditional book model.
- Now AMM overcomes the open book model, and liquidity accepts the AMM formula.
So, what’s the process for buying the coins at UNISWAP?
Following the same pop-out another relevant question: “Is it safe for all to use UNISWAP?”
Are all these consecutively followed technologies safe for all?
So Basically, to answer all the above queries UNISWAP is built on Ethereum development platform and powered by Ethereum blockchain development technologies which makes it highly secure.
Profit From Liquidity
A very clear-cut and objective answer is ready for the question i.e. Trading fees.
- As aforementioned in detail about the trading and exchange of the token in return for other pool tokens.
- In return, mention marks the trading fee of 0.30% that every swapper has to pay, then this amount will be added to LP.
- In addition to that, liquidity providers receive part of the transaction fee proportional to their weight in the liquidity pool.
What else is different about Uniswap?
- In general When an ERC20 Token is created eligible for being listed on Uniswap,there is no permission required because Every ERC20 token has its own Smart-Contract and liquidity Pool.
- Once ERC20 Token has its own liquidity poll and smart contract then anyone can trade a token and add or contribute their token into the liquidity pool, and earn a 0.3% fee for being a liquidity provider.
- To Contribute to a liquidity pool , you should have an equal value of ERC20 token and ETH.
How Does UNISWAP’s Automated Liquidity Provisioning Work?
Overviewing the graph drawn above represents the constant K, which is a function. Where the x-axis indicates the tokenA and y-axis indicates tokenB, where both are ERC20 tokens (ETH)
The determination of the prices in UNISWAP is done by the amount each token holds in the pool. Depicting in detail, it uses a specific constant function namely:
X *Y= K
Wherein moving to the description of the parameters making the equation functional defines:
X=token0, Y= token1, K=constant
- THE K gets maintained in a way by adjustment during the trade that leads to a change in price.
- Taking, into account, the fact that this automated LP has given a boost to the DeFi space creating many new and more sophisticated trading opportunities. And swaps are the right things for the crypto space, hopefully, they will be true in the world of crypto app development.
- This creation was made by Hayden Adams picking up the inspiration for the creation and implementation of protocols from a post made by the founder of Ethereum.
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Conclusion
Uniswap opened a completely new and exciting future for DeFi with its concept of financial exchange. Although many Decentralized Financial Exchanges have come up over the years, Uniswap still hosts trading volumes larger than all its competitors. Uniswap is constantly innovating and it is exciting to see what it will bring in the future.
Let’s look forward to its success rate in the near future!!!!
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