Typically, most of the crypto trading activities run on centralized exchanges like Coinbase and Binance that control users’ funds. Order book-based trading works in a way where the user has the option to place buy and sell orders with a specific price set.
In a case where a user wants to sell their Bitcoin at the price of $33,000 on a centralized exchange, they would have to wait for someone who is willing to buy it at the same price or maybe even more. The main issue is that it removes liquidity. That’s when Uniswap steps in.
Uniswap is not the typical type of exchange that traders are used to, it is entirely decentralized. On top of that, it utilizes a newer type of trading model called an automated liquidity protocol. Going back to 2018, Uniswap was first built on top of the Ethereum blockchain, which is also known as the second biggest cryptocurrency platform in terms of market capitalization. This factor adds to its compatibility level with ERC-20 tokens and different infrastructures.
More to that, the Uniswap protocol is completely open-source and allows users to easily list their token on the crypto exchange. As Uniswap is completely decentralized, the users are the ones responsible for their funds, which is different for centralized exchanges where they are the ones that hold your money.
Uniswap has a user-friendly working mechanism and extensive features that make it stand out from the rest of the lot. A few of its working protocols are mentioned below.
As mentioned in the introduction, there is an issue of liquidity. However, Uniswap has a solution to it – an automated liquidity protocol. It gives the users the incentive of becoming liquidity providers. That’s how Uniswap users create “funds” that are used for the execution of all trades that happen on the platform.
Another important factor is the way it determines the cost of every token. Rather than using an order book system, Uniswap aims to solve this problem by making use of an automated market maker system that relies on a mathematical equation x (the price of one token) * y (the price of another one) = k.
The main goal for an arbitrage trader on Uniswap is to find those tokens which are being traded for the price that is either higher or lower than its average market price. It will consequently lead to imbalances in the pool and lower or increase the price.
Uniswap is a fairly easy and convenient platform to work with. Although, one thing that the user must keep in mind is that they should already own ERC-20 supported wallet setups, say, MetaMask. The next thing that the user needs to do is add Ether to trade on Uniswap and pay for gas, Ethereum's transaction fee.
It is very common for a user having ERC-20 compatible wallets to be given three options during the payment process. They can choose between slow, medium, and fast speed. Slow is the cheapest, fast costs the most, and medium is a middle ground between the two.
Uniswap native token, or UNI, is a governance token. The purpose of the UNI token is that it gives the user an option to vote on the advancements and modifications to the platform. These decisions also include how minted tokens should be distributed on the crypto market.
Users often face difficulties while exchanging their assets to UNI. However, Swapzone, as a reliable exchange aggregator platform, is here to help them to convert their assets with only a couple of clicks. Follow these steps to acquire UNI from any available crypto exchange service within a few seconds:
If you’re a visual learner, see how to convert BTC to UNI in one of our step-by-step video tutorials: