August 24, 2023
6 min read
Uniswap is a decentralized exchange that has its own ecosystem that is powered by its native token, UNI. It has become a popular protocol to exchange more than 300 ERC20 tokens. ERC20 means it was built on top of the Ethereum blockchain. ERC20 tokens are easily interchangeable because they have a common link back to Ethereum.
Uniswap was created at the end of 2018 by Hayden Adams. Adams accepted venture capital investments to get it going and off the ground. By October 2020 daily trading volume was around 220 million. Uniswap quickly became one of the biggest decentralized exchanges due to the decentralized nature of the exchange. Learn more about what a decentralized exchange is below in the FAQ section.
Tokenomics are the economics of a token and their ecosystem. There are several unique factors that go into what makes Uniswap unique. We'll go over the Decentralized Autonomous Organization (DAO), what comprises it and how it works. Furthermore, we'll take a look at the allocation of UNI tokens, who's got what and where they are located. So let's check out the DAO
Decentralized organizations are run by the people and a system of voting on topics to maintain and/or upgrade the software. Generally, members have voting power based on how much they have invested or staked in the UNI token.
The Uniswap DAO has more than 310,000 members that can vote over the $1.6 billion treasury, governance and roadmap of the decentralized exchange (DEX) by holding UNI governance tokens. Any UNI holders can submit a proposal, however it must garner up to 25,000 yes-votes before it can be eligible for further deliberation. The next phase is the consensus check, where the proposer has to highlight the core changes and garner at least 50,000 yes-votes. Finally, the governance phase has to attract 40 million yes-votes for the proposal to be adopted. Uniswap was the most dominant DEX in 2021 in terms of trading volume, and the top ranked DAO in terms of the amount held in the treasury.
The total supply of Uniswap's governance token, UNI, is 1 billion tokens. These will become available over the course of four years, after which Uniswap will introduce a perpetual inflation rate of 2% to maintain network participation.
Token distribution currently consists of the following: 60% to Uniswap community members, i.e. users, 21.51% to team members, 17.8% to investors and 0.69% to advisors. The latter three distributions will occur according to a four-year vesting schedule.
Out of the majority set to go to users, 15% can be claimed by those who used Uniswap prior to Sep. 1, 2020. These even include users who submitted transactions which were never successful - they are eligible for 400 UNI.
The UNI token serves the purpose of enabling shared community ownership in the growth and development of the decentralized protocol. This allows UNI holders to participate in the governance of the Uniswap protocol and wider ecosystem, in a neutral and trustless manner. The success and adoption of Uniswap products will positively impact Uniswap price, hence incentivizing token holders to contribute to the self-sustaining development of the ecosystem.
Four years after the UNI token launch, in September 2024, a perpetual inflation rate of 2% annually will take effect. This is to ensure that participation in the Uniswap ecosystem continues, by disincentivizing passive holders.
Pricing data on UNI token starts on 17 September 2020 at $6.89 USD per token. The last quarter of 2020 UNI's price trended downwards, reaching a nadir at $1.93 in November 2020. After hitting this all time low, the pricing started to slowly trend upwards. By midway through January 2021, the price finally surpassed its debut pricing point. From that point onward it was on an upward climb. In the final two weeks of January, the price shot up to $19. It then took a 2-week pause before shooting up just under $30 on 19 February 2021. That peak triggered a sell off, as investors took profits, but it quickly regained momentum and was over $33 by 3 March 2021. The end of March saw another sell off, but it quickly climbed back up. By 3 May 2021, UNI hit its all time high at $43. Within a few days, there was a sharp sell off that drove the price down to $16 per token by 22 May 2021. After that, there were a few peaks and valleys over the summer and some strong support over August at around $30. But in September the price started to slip. It was not big at first but it would be the start of UNI's slow decline from the end of 2021 to present day. At the time of writing, the price has fallen to $5.29. UNI has given up all its gains for the time being.
While we are on the subject of pricing, Atomic Wallet has a little disclaimer in that it doesn't offer investment advice and the information in this and other articles is only for informational purposes only. It should not be considered investment advice. If you want to make an investment, please do your research before investing in any asset, whether traditional or crypto.
You might be asking yourself how does Uniswap work exactly? Well, it is not a simple answer, but let's take a high level overview of how it works.
Uniswap is an automated market maker. In other words, it is essentially a collection of smart contracts or logic gates that define a standard way to create liquidity pools, provide liquidity, and swap assets.
Each liquidity pool contains two assets. The pools keep track of aggregate liquidity reserves and the pre-defined pricing strategies set by liquidity providers. Reserves and prices are updated automatically every time someone trades. There is no central order book, no third-party custody, and no private order matching engine.
Because reserves are automatically rebalanced after each trade, a Uniswap pool can always be used to buy or sell a token - unlike traditional exchanges, traders do not need to match with individual counterparties to complete a trade. In a traditional market you need to find a buyer and a seller to make the deal work, as there is no liquid pool to pay contracts on demand.
Atomic Wallet offers you a great place to store your UniSwap tokens. Besides just being a wallet for storing, sending, and receiving, you can do much, much more with an Atomic wallet. Atomic Wallet has some great features such as having a built-in decentralized exchange/swap where you can buy more than 300 crypto currencies and have them securely stored in your Atomic Wallet. What's more is that you can stake a number of tokens right in the Wallet! On top of that, for each transaction you make in Atomic Wallet, buying, selling, or swapping, you are eligible to get up to 1% back per transaction paid out in Atomic Wallet's native token, AWC.
Do you still have some more questions or are you looking for resources with more information? Then look no further! Check out the FAQ and Resources section below!
The Uniswap Protocol is an open-source protocol for providing liquidity and trading ERC20 tokens on Ethereum. It eliminates trusted intermediaries and unnecessary forms of rent extraction, allowing for safe, accessible, and efficient exchange activity. The protocol is non-upgradable and designed to be censorship resistant.
Unlike platforms such as CoinBase or Gemini, where all transactions pass through a centralized exchange and accounts must be opened on said exchanges, a decentralized exchange has no accounts. You simply use your wallet, connect it to the exchange, send your crypto that you want to exchange, say Ethereum, and you want to exchange it for UNI. So, you send your Ethereum and exchange it for UNI. The transaction happens on the exchange, then the UNI tokens that you bought with your Ethereum are then sent to your wallet. You disconnect your wallet and you are done. Your funds are not held by the platform, they are yours. This is a great safety feature. If a centralized exchange collapses, then your assets are lost. If your assets are in your wallet, they are not subject to outside forces.
When you exchange one cryptocurrency for another, you are not identified on a decentralized exchange. On centralized exchanges, however, you will need to go through a standard identification process known as KYC. KYC processes involve collecting your personal information, including your full legal name and a photograph of your government-issued identification document. As a result, DEXs attract a large number of people who do not wish to be identified. Does the government want to know what you are doing or do they just want to know what to tax you at the end of the year?
There are several disadvantages to using a decentralized exchange such as advanced knowledge to use the technology. Decentralized exchanges are accessible by using cryptocurrency wallets that can interact with smart contracts. Not only do you need to know how to use these wallets, you must be able to understand security-related concepts associated with keeping your assets secure. On top of that, you need to use the right tokens for each network, as they differ. Without a network's native token, in this case, UNI, your funds may get stuck. This is because you will not be able to pay the fees required to transact. You'll need the knowledge to be able to select a wallet and fund it with the correct tokens.
Secondly, there are also smart contract vulnerabilities you'll need to watch out for. Smart contracts on blockchains like Ethereum are publicly available and anyone can review their code. Moreover, smart contracts of large decentralized exchanges are audited by reputable firms that help secure the code.
While it is great that these large exchanges have audits, there are still mistakes that can happen. There will be bugs that can still slip past audits and other code reviews. Auditors may even be unable to foresee potential new exploits that can cost liquidity providers their tokens.
Thirdly, there are unvetted token listings. Yes, it can still be like the wild west out there.
Anyone can list a new token on a decentralized exchange and provide liquidity by pairing it with other coins. This can make you susceptible to scams known as rug pulls that make you believe that you are buying a one token, but you are really just putting funds into someone else's bank account.
Some exchanges-but not all!-counter these risks by asking you to verify the smart contract of the tokens you are looking to buy. While this solution works for experienced users, it circles back to specific knowledge problems for others.
So while there are a lot of great reasons to use a decentralized exchange, there are some good reasons to prepare and educate yourself so that you are not taken advantage of. Remember, a fool and his money are easily parted.
Decentralized exchange aggregators use several different protocols and mechanisms to solve problems associated with liquidity. These platforms essentially aggregate liquidity from several Decentralized exchanges to minimize slippage on large orders, optimize swap fees and token prices and offer traders the best price possible in the shortest possible time.
Protecting users from the pricing effect and decreasing the likelihood of failed transactions are two other significant goals of Decentralized exchange aggregators. Some Decentralized exchange aggregators also use liquidity from centralized platforms to provide users with a better experience, all while remaining non-custodial by leveraging an integration with specific centralized exchanges.
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