Uniswap is an Ethereum-based decentralized exchange allowing users to swap ERC20 tokens. The platform is based on an open protocol fueled by smart contracts. The DEX was launched in November 2018, by a young and talented developer Hayden Adams who at that time didn’t even have experience in Solidity, a contract-oriented programming language used for Ethereum.
The protocol has been created to add value to the Ethereum Network and it has coped with this task brilliantly. Uniswap delivers a much-needed DEX experience that caters to the needs of different categories of users such as hardcore traders and those who just enter the market. At the time of writing, Uniswap supports only Ethereum-based assets.
The name of the platform was invented by Vitalik Buterin. When he was told that the initial name of the project would be Unipeg, which is a mixture between a Unicorn and Pegasus, he mentioned that the name Uniswap seemed more suitable for such a platform. So the founder followed his advice.
The history of Uniswap started when a small Uniswap team, which included less than 10 employees, received a 100,000 USD grant from the Ethereum Foundation and made everything possible to use these funds to the advantage of the platform. Then, in April 2019, the startup managed to raise 1 million USD in a seed round with a leading investor Paradigm that provided the opportunity to start working over the next version of the platform.
However, the protocol wasn’t that popular after the initial launch of the platform. It acquired huge popularity among users after the release of its second version Uniswap V2 in May 2020. The platform was significantly upgraded then. With its release, direct swaps of ERC20 tokens became available. Wrapped Ether (WETH) was for the most part removed from the equation.
It’s also worth saying that this version of the protocol started supporting ERC20 tokens that were incompatible with the platform before. The examples are OmiseGo and Tether. Additionally, a range of technical enhancements was introduced with the launch of an improved protocol that made the platform convenient and easy to use. The effect was noticed without delay as the customer base started growing. A new protocol was launched against the background of the DeFi boom when yield farming gained traction, so it also contributed to the popularity of Uniswap making it an indisputable leader among the decentralized exchanges.
The permissionless DEX gives the opportunity of trading Ethereum-based tokens right from a web wallet without deposits and withdrawals to a centralized order book. The platform functions as a one-stop-shop enabling easy exchange of any ERC token without tiring KYC procedures. The process takes just several clicks. The leverage of smart contracts enables autonomous on-chain transactions at marginal costs.
The protocol presents a tool developed for the members of the ecosystem that doesn’t charge high fees usually paid to middlemen. The platform uses a math equation and pools of tokens supporting the system.
As the exchange uses a permissionless protocol, any ERC20 token can be listed on the platform. There is a liquidity pool for each token on Uniswap. In case the platform doesn’t have a pool for a specific token yet, one can create it without any efforts.
With Uniswap, so many official and unofficial resources have been created for developers working with the protocol. All this has been done with a single purpose to facilitate the integration of the swapping system into DeFi products.
The platform has a convenient overview page including the exchange data on Uniswap. The detailed stats including 24-hour volume, daily transactions, and total liquidity are available for users at a glance. The top exchanges can be sorted by volume, price, liquidity so that the users could see the most active pools at once.
Since the service is very popular among crypto enthusiasts, it was provided with front-end user interfaces for convenience of use. One of them is InstaDApp enabling investment to Uniswap pools without visiting the official platform. There are even interfaces that enable the same procedure without using a combination of ETH with some other token, for instance, Zapper.fi.
In September 2020, the platform launched the governance token UNI. This is the first token that was listed to Coinbase exchange in just a few hours after it was issued. The terms of distribution imply that 40% of the tokens are allocated to the development team, advisors, and investors.
The experts consider that the UNI token was issued as a response to the formation of SushiSwap, which is a clone of a protocol with one exception – the platform launched its own token for the motivation of users. When it created its own platform, it started to migrate tokens out of the UNI DEX into its own liquidity pools. Tokens transferred from Uniswap pools are based on proof-of-holding liquidity pool tokens staked in SushiSwap by liquidity providers. In this way, about a billion dollars were drained from the platform. Sucking liquidity away from the industry-leading rival, which is Uniswap in this case, SushiSwap applied the technique that is known as ‘vampire mining’.
Total Value Locked (TVL) is one of the parameters determining the DeFi platform. Judging by it, Uniswap has become the number one platform in the first year of its upgraded version release, while its token UNI has become one of the most widely distributed in DeFi. It’s enough to mention that the total value of Ethereum locked in Uniswap surged to 1.6 billion USD in a day after its launch. Uniswap charges a 0.25% fee on each transaction to incentivize liquidity.
Hayden Adams started working over the project after he was laid off from Siemens where he worked as an engineer for a year. He was so inspired by the article published by Vitalik Buterin that decided to create a platform described in his work – the interface conducting swapping in an automated manner.