Overview
Technically speaking, Uniswap is a set of a computer program that is built at the top of Ethereum and can be used for decentralized token swaps. Traders can exchange token with each other on this platform without relying on anyone to take care of their crypto funds.
Apart from that, Uniswap best suits for those who are seeking to earn passive income via their crypto assets. Because at Uniswap, they can earn exorbitant fees by lending their crypto to special reserves that are referred to as liquidity pools.
Centralized exchanges are the cornerstone of the crypto industry for the last few years. Their compelling features such as expeditious settlement time, high trading volume, and consistently improving liquidity allows them to capture substantial market share.
But there are still some caveats that hinder the massive growth of centralized exchanges. The most prominent of them all is you don’t need to trust third-party intermediary to secure and hold your crypto funds. This is where the power of trustless protocol comes into the picture in the form of decentralized exchanges.
In a decentralized exchange, there is no involvement of intermediary or custodian in the trading.
Due to the inadequacies of blockchain technology, it was an arduous job for developers to create decentralized exchanges that compete with their centralized counterparts. But with consistent efforts and hard work, developers manage to create a decentralized exchange Uniswap that surpassed centralized exchanges both in terms of user experience and performance.
What is Uniswap?
From a technical standpoint, Uniswap is an automated protocol that solely relies on the liquidity protocol. To do trade at this exchange, you no longer required an order book or any centralized party.
Since Uniswap Clone is open-source software , therefore any developer can contribute to it. Herein the question arises. How does any crypto exchange settle the trade without an order book?
To get this job done, Uniswap encourages liquidity providers to create liquidity with an aid of its model. This system paves the way for a decentralized prizing mechanism that eliminates the need of order book.
Uniswap protocol was initially proposed by Hayden Adams in 2018, but the underlying technology that spurs its implementation was first coined by an Ethereum co-founder Vitalik Buterin.
Working Procedure of Uniswap
Uniswap is a phenomenal liquidity marketplace that is completely decentralized. No central body is required for the settlement of transactions at this exchange. Besides, all the Uniswap users can act as a one-stop-shop at any exchange, whether it a token exchange or a trading platform.
Anyone with Ethereum address can make money at this exchange by contributing to the liquidity of an exchange. On the other hand, users of uniswap can independently exchange ERC20 token that included the native ETH token.
The price of the crypto token on the Uniswap solely depends on the market, not the demand from either the buyer or seller. You can easily create a token and list it at the Uniswap.
To participate in the liquidity pool, all you need is an equivalent value of ETH and ERC 20 token. Once you have the desired amount of tokens at disposal, you can exchange it with your peers and can contribute to the liquidity pool.
Conclusion
Uniswap is an unprecedented decentralized exchange protocol that allows anyone with an Ethereum token to exchange token or contribute to the liquidity pool without the involvement of any central regulatory body.
Even though this protocol has some limitations, but it has enormous potential for the future of trustless token swapping. Once the scalability of Ethereum 2.0 resolves, the adoption of Uniswap will skyrocket.
