UNI is a governance token issued by the decentralized cryptocurrency exchange Uniswap. This is an automatic market maker working on the basis of smart contracts that create a liquidity pool for ERC20 tokens and implement the algorithm without using the orderbook. The official upgrade to Uniswap V2 took place in May 2020. The launch period coincided with the popularity of the yield farming that also contributed to the bigger popularity of the exchange.
The launch of the platform took place in November 2018 by Hayden Adams who developed the service being inspired by the article published by Vitalik Buterin a year earlier. After contributing to a Uniswap liquidity pool, users get a pool token that also belongs to the group of ERC20 tokens. They have the same properties as other ERC20 tokens allowing users to exchange and sell them. It’s possible to use them in other dApps as well. Each token is a tiny share of the liquidity pool with a trading fee of 0.3% included. As soon as holders of these tokens reclaim their funds, these tokens get burned.
Users who are going to use the Uniswap protocol should have an Ethereum address and a wallet that is suitable for storing ERC20 tokens. Nothing more is needed for swapping tokens as the transaction can be easily approved right in the wallet. Users should keep in mind that the swapping procedure requires additional fees when confirming the swap.
There is no need to worry about the prices when you deal with an automated market maker. The concept of orderbooks is entirely eliminated in this case. If the token has its own liquidity pool and smart token, any user can trade it and earn a fee of 0,3%, which is a fee for providing liquidity. The contribution to the liquidity pool requires having an equal value of ETH and ERC20 tokens.
There is a pricing mechanism “Constant Product Market Maker Model” at the basis of this decentralized exchange. The main activity of the platform is balancing out the tokens’ value for swapping based on the demand.
UNI token details
Out of all UNI tokens that have been initially issued, 60% is allocated to the community, 21.5% to the team of the platform, and the remaining 18.5% to the investors and advisors.
The native Uniswap token was unveiled to the public on September 16, 2020. UNI token was created for protocol management. The token was immediately added by Coinbase after it was launched, which is the only token so far that was enlisted so fast, even before the auditing was conducted. Its price exploded 300% after Binance announced listing the cryptocurrency as well. UNI is traded on more than 50 platforms that hurried to add a popular token to their offers including such exchanges as Okex, Kucoin, Gemini, Bitfinex, FTX, Poloniex, etc. Such interest to the asset from the crypto community demonstrates a high level of trust in the decentralized platform that issued the token and high evaluation of its prospects on the market.
UNI is an ERC20 token, therefore, any wallet that is suitable for Ethereum-based tokens can be used for storing UNI. A wide range of reliable hardware wallets is presented on the market that can store UNI such as Trezor One, Ledger Nano S that can be acquired for cold storage of your crypto assets. It’s also possible to download a software Trust Wallet or Atomic wallet that has little or no access to the Internet for better security.
UNI token distribution
Since UNI token is a governance token, it entitles its holders to vote for the decisions that determine the future of the protocol and the platform. When Uniswap launched UNI, it was accompanied by airdropping 400 UNI tokens to all those holders who used Uniswap protocol at least once before September 2020. In this way, the platform distributed 150 million native tokens. Uniswap users claimed 66 million tokens in the first 24 hours after airdropping was announced. Each user could get 400 UNI and sell them immediately if they wanted to. The batch of 400 tokens was worth more than 1,200 USD at the date of the token release. The platform distributed 40% of all tokens in this way, planning to distribute the rest of the tokens within 4 subsequent years.
Experts consider that such a distribution model was well-thought. It enables the team to play an important role in management when the project is young. The developers don’t plan to take part directly in the development of the project in the future and only votes will determine the policy of the platform.
There is one nuance, though. Analysts at Glassnode questioned the decentralization of the Uniswap exchange, admitting that the project team deliberately did not disclose all the details of unlocking the tokens. In accordance with the announcement made by the developers, the tokens are distributed in the course of the first four years. Still, the team was reproached for lack of a clear public plan that can mean that tokens are actually not locked. For instance, Glassnode expressed its suspicions on the subject.
The distribution plan displays gradual vesting. However, the tokens allocated to the team and investors are kept on a regular ETH address without transfer restrictions, not locked in the vault for smart contracts management and distribution performed programmatically over time. The analysts say that such a method of storage gives users administrative rights in the protocol.
The other thing that deserves attention is the suboptimal management system, in which users need to have 1% of tokens to complete an offer. Since not all tokens have been released into circulation yet at the time of writing, Glassnode estimates the real share of required UNIs under current conditions at 8%. The only entity that has the required number of tokens so far is the Binance exchange, which is a centralized exchange and a business rival of Uniswap. In case someone manages to concentrate 10 million UNI in delegated votes and at least 40 million votes, the community-level governance becomes impossible.
The founder and CEO Hayden Adams graduated from Stony Brook University, where he studied Mechanical Engineering. Hayden worked as an engineer at Siemens. The team of the platform is small and includes less than 10 employees.