Ethereum Dapps Worth Looking Into: Uniswap

Ethereum Dapps Worth Looking Into: Uniswap

Much of the focus surrounding Ethereum has to do with the price action of the cryptocurrency itself. It is true that Ethereum is performing better than everything short of Bitcoin in the cryptocurrency market by market cap. Although there is plenty to be said about Ethereum’s price action; the Decentralized Apps, or Dapps built on the Ethereum network equally contribute to the value of Ethereum. In this article series, we will be looking at some of the most successful Dapps built on Ethereum. The Dapp we will be discussing in this particular article is Uniswap.

Uniswap

Uniswap is undoubtedly one of the most popular Dapps on the Ethereum network. Uniswap is technically a DEX, or Decentralized Exchange, which allows users to exchange ERC-20 tokens – meaning tokens which are built on the Ethereum blockchain – in a decentralized environment. Unlike traditional – aka centralized – cryptocurrency exchanges; Uniswap users are in control of their cryptocurrency keys the entire time, and do not need to rely on a third-party to facilitate the transaction.

Uniswap was released in 2018 and was launched without its own ERC-20 token. Instead, Uniswap simply used the Ethereum token as its currency. Because Uniswap used the Ethereum token to facilitate direct ERC-20 token swaps, there was an ample amount of liquidity available. Although Uniswap did eventually release its own token – UNI; Uniswap’s initial decision to use the Ethereum token during its initial stages, gave it a solid advantage over other DEXs.

Uniswap has seen a substantial increase in trading volume since 2019. This is partially due to Uniswap raising seed-funding from Paradigm; an investment firm which is focused on funding a variety of cryptocurrency projects. Paradigm certainly gave Uniswap a boost; however, many similar DEXs and Dapps saw a similar increase in volume around the same time. This is due to the fact that all Daps and DEXs were seeing a significant rise in popularity in 2019.

Currently, Uniswap boasts an all-time trading volume of $302B. Uniswap has approximately 72 thousand liquidity providers, features over 200 DeFi integrations, and has processed 52 million all-time trades. Compared to similar DEX Dapps, Uniswap holds over four times the amount of liquidity.

Beauty in Simplicity

The hallmark of Uniswap’s user interface is in its overall simplicity. When looking at the Uniswap interface, you will notice immediately that there are no complicated order books, or order forms. Uniswap has only three basic functions: Swap, send, and pool.

Because Uniswap is a Web 3.0 Dapp, it can only be connected to one of the following wallets:

Once your selected wallet is integrated with the Uniswap interface, it will automatically interface with the Uniswap smart-contracts, which interact with the Ethereum network to confirm any necessary operations.

One important consideration when exchanging ERC-20 tokens via Uniswap – as opposed to other applications – is that the price of the quote asset is only an estimation of its actual price. This is due to three factors: Slippage, price impact, and liquidity provider fees. Even though Uniswap does not charge any fees of their own; Uniswap’s liquidity providers will take a fee of 0.3% of each trade. This is simply to compensate the liquidity providers, for their participation. Slippage accounts for the deviation in price between the time the trade order is placed, and when the order is filled. The price impact is the difference between the market price and the estimated price deviation which correlates directly to the price of the trade itself. This factor depends completely on the size of the current liquidity pool. Essentially when two high-liquidity tokens are exchanged, the price impact will be lower than when two tokens of lower liquidity are exchanged.

Uniswap Pool

One of the most interesting features of Uniswap, is its ability to directly send a token which one user holds, which is then exchanged for a different token that the individual on the other end of the transaction would like to receive. In this instance, the token which you want to send, is converted to the token the receiver of the transaction wants to be paid in. You are given an estimation of the exchange rate between each token – and if you agree to it – the exchange takes place and deposits an almost identical value of the token which the second party has agreed to receive.

This feature works because both users are taking advantage of Uniswap’s liquidity pool feature. Uniswap liquidity pools are made of binary trading pair stockpiles – where equal values of both tokens within the trading pair – are stockpiled in the same smart contract. When one token is deposited into the smart contract, it releases the estimated equal value of the second token in the binary pair, to the receiver.

In Conclusion

Uniswap and other Ethereum Dapps hold an incredible amount of potential for the future of decentralized finance, as well as decentralized versions of many of the internet applications that we use in our everyday lives. There are new Ethereum Dapps being created every day, as the DeFi world becomes more mainstream. We will continue to keep you up to date on all the exciting Dapps which the Ethereum network has to offer!

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