Is UniSwap a good investment? What is Uniswap?


UNISWAP, Another one of its kind in the Blockchain realm. Let’s dive straight into what it is and it’s significance being the unstoppable force in the world of decentralized exchanges(DEX). Despite being disparate as a Governance coin and as a protocol, the immensity yet expands.

Centralized Vs DecentralizedBefore we dive right into UNISWAP, let’s brush up on the definition of Centralized and Decentralized exchanges(DEX).

In a bird’s view, a centralized exchange is controlled by a third-party owner who owns the exchange just like banks, they are safe and reliable(until hacked!). It also means there are buyers and sellers, where you can sell your crypto when the buyer is ready or vice versa. A total downside to this approach is security, simply because the multi-billion dollars are stored in a centralized blockchain node managed by a single owner, making it more vulnerable to hackers. Popular examples are Binance, coinBase and many more.

However, a DEX is much more secure as the crypto(coins) is not stored in any centralized nodes but with YOU. The onus is on YOU, decision-making authority will be YOU, the only person who has full control over it is YOU. Unlike centralized exchanges, there will be no centralized wallet holding the crypto in DEX. The downside to this is the lack of liquidity to enable instant conversion of tokens, in other words, you might need a seller or buyer ready with money in hand to facilitate the transaction. Some examples are Bisq, IDEX, Ether delta etc.,

What is UNISWAPUNISWAP is a decentralized cryptocurrency exchange, that facilitates automated transactions between cryptocurrency tokens on the Ethereum blockchain through the use of smart contracts.

Whoof!, that’s a lot of jargon. Let’s go over it one by one.

We already know what is DEX and crypto. So, Ethereum is the platform that is built on Blockchain technology. See, it’s that easy.

Why Uniswap is better than its peers

With regards to our aforementioned discussion on DEX, UNISWAP is the best. Because it eliminates one of the biggest disadvantages of regular decentralized exchanges where liquidity is not viable.

It is a protocol that works only on an Ethereum blockchain where ERC20 tokens are exchanged without the need for buyers and sellers to create demand. Ah, wait! ERC20 tokens are blockchain-based assets that follow a list of standards and can be transacted between a buyer and seller. It is stored in a crypto-wallet with a value attached to it only on the Ethereum blockchain just like any other cryptocurrency in their respective blockchain platform.

Uniswap favours liquidity by an equation that automatically sets and balances the value depending on the demand. Version 2 was launched in May 2020 enabling increased security.

Significance of Uniswap

A trader’s viewpoint of Uniswap is it allows to trade tokens without any middlemen or any transaction fee as it is decentralized.From a token owner’s viewpoint, anyone can effortlessly create an ERC20 token and list it on UNISWAP without any permission. Because each token will have its own smart contract (List of standard rules) in the liquidity pool. We can also bring in investors to fund the liquidity pool.

Unlike the above viewpoints, we have a 3rd viewpoint which is the investor’s angle, where anyone can provide liquidity to any token listed on uniswap. As and when someone contributes ERC20 tokens to a uniswap liquidity pool, they receive a pool token or liquidity token as an incentive. Each such pool token will earn them a flat 0.3% rate per trade facilitated. Wow! Now it gets much cooler.

Contrary to other decentralized exchanges that rely on sellers and buyers to create liquidity, for a trade to happen. Uniswap uses a simple math equation and pools of tokens to do the same job. This unique pricing mechanism is called the Constant Product Maker model. Gotcha! Definitely in the next blog.

Nonetheless, let’s conclude that uniswap has a robust and intelligent mechanism to easily execute trades without the requirement for liquidity to be controlled by buyers and sellers in the platform is simply, revolutionary.

Uniswap coinIn September 2020 UNISWAP launched the UNI governance token or coin and it didn’t airdrop to anyone who had used the protocol before Sep 1. UNISWAP plans to distribute a capped total of 1 billion UNI coins over the next 4 years. As a governance token UNI entitles the holder to vote in on how the protocol is run.

Is UNI a good investment?

Let me share some interesting facts about it that will help you in deciding for yourself.

The entire concept falls under DeFi(Decentralized finance), if you understand the DeFi landscape and the underlying potential it has, uniswap should be very intriguing to you. In its first week of trading, following its launch, the UNI token surged from a price of $1USD to $7USD before dropping off by 30% to $5USD. The amount of ether locked in UNI tokens raised to 1.6 Billion USD in the first  2 days of launch. By the 7th day, it reached 1.9 Billion USD.

Uniswap has a market cap of above 1.44 Billion USD. Currently, the 0.3% trading fee does not apply to UNI token holders, but to liquidity providers. With a protocol of 1 Billion USD of daily trading volume, experts are speculating that the price of the uniswap token will be based on the potential return made through fees should at some point governance decide to enable it.

However, the entire platform has its equal share of risks especially in the design of smart contracts that may cause loss of funds, so always it is advisable to gain full knowledge of the token you plan on investing in beforehand.

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Is Uniswap a good investment? What is Uniswap?
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Is Uniswap a good investment? What is Uniswap?
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Is UNI Token a good investment? What is Uniswap? An expert analysis.
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