History of Uniswap

In the year 2016, Vitalik Buterin, the founder of Ethereum proposed the concept of a decentralized exchange. This is where the idea for Uniswap originated. A year later, an engineer named Hayden Adams took this idea and started working on it. With massive support from the Ethereum community, Adams managed to receive several grants, including $100,000 from the Ethereum Foundation. Then, after a year of intense trial and testing, Uniswap finally launched in November 2018.

In the months to follow, Uniswap gained popularity and received $1M in funding from an investment firm called Paradigm. In September 2020, the platform launched its primary token UNI. To celebrate this launch, Uniswap gave away 150M UNI to the users of the platform. As of March 2021, Uniswap is valued at $15.1B, making it the largest DEX by market cap.

What is Uniswap used for?

Uniswap is a non-custodial cryptocurrency exchange that can be used to swap or trade ERC-20 tokens without the need for intermediaries. Anyone can list tokens on this platform without the need for permissions.

Users can use UNI, the governance token of Uniswap, to vote on platform development decisions. Token holders can also use the token to fund liquidity pools, partnerships, grants, and any other initiatives meant for the development of the platform. UNI is valued at $28.64 as of March 2021.

How does Uniswap work?

Uniswap eliminates the need for the order book model used by centralized exchanges. Instead, the protocol utilizes liquidity pools and automated market makers (AMM).

A liquidity pool is a collection of tokens that are locked in a self-executing digital contract called a smart contract. Liquidity providers fund an equal value of two tokens to create a pool. They then receive special tokens called Liquidity tokens, which are equivalent in value to the funded tokens.

An AMM manages all the pools in the platform. When there is a buyer looking to trade a token, the AMM determines the best price for the token based on demand and supply. The token the trader wants is then drawn from the liquidity pool. Traders are required to pay a fee of 0.3% for using the platform and a part of this fee is used to reward the liquidity providers of the platform.

Advantages

Liquidity always remains constant: Uniswap’s AMM uses a constant product formula to maintain liquidity in the pools. This ensures that the platform never runs out of liquidity.

Token has a variety of use-cases: UNI can be staked by community members to have a say in the platform’s governance. The members are incentivized for their participation. The token can also be used to fund the platform’s growth initiatives.

Open-source protocol: Uniswap is an open-source protocol whose code developers can use to create their versions of the platform. Some famous examples include SushiSwap and Zuniswap.