What Is Uniswap (UNI)? Is It Worth To Invest In?

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Blockchain247

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Since its inception, the Uniswap Protocol (“Uniswap”) has served as a trustless and highly decentralized financial infrastructure.

1. What is Uniswap (UNI)?

Uniswap is a software running on Ethereum that seeks to incentivize a global network of users to maintain an exchange where cryptocurrencies can be bought and sold by traders.

One of an emerging number of decentralized finance (DeFi) protocols, Uniswap leverages multiple crypto assets, including its native UNI cryptocurrency, to provide a service similar to a traditional exchange. The difference is Uniswap has no one central operator or administrator.

Rather than maintaining a central order book where buyers and sellers can place orders, Uniswap instead uses a collection of liquidity pools.

Similar to protocols like Balancer and Curve, liquidity providers contribute to Uniswap pools by first locking two assets into a smart contract. For example, Uniswap’s DAI/ETH liquidity pool consists of equal values of DAI and ETH deposits.

In exchange for maintaining liquidity in these pools, providers are then rewarded with a portion of the trading fees, along with newly minted UNI cryptocurrency.

Deposits in these pools are essential to Uniswap’s operations, as users can then buy and sell cryptocurrencies from the liquidity pool, swapping out one token for another.

Anyone can list a token on Uniswap, as long as there is a liquidity pool for traders. However, Uniswap is built on Ethereum, meaning it does not list tokens trading on other blockchains.

Users seeking to stay connected on the current development status of Uniswap can follow its official blog for up-to-date details.

2. How does Uniswap (UNI) work?

The Uniswap platform uses blockchain-based smart contracts to facilitate the decentralized trading of many different digital assets. Pairs of digital assets are swapped via liquidity pools, which use smart contracts to automatically rebalance after every trade.

The Uniswap blockchain, which functions like an electronic ledger, is continually updated to reflect the trading activity occurring among Uniswap users. By functioning as an exchange without any central authority's involvement, Uniswap is an automated market maker.

Uniswap operates using the Ethereum platform, which currently uses the proof of work operating method. Proof of work requires vast computing and energy resources, which support transaction processes and generate new cryptocurrency.

Uniswap users can participate in the decentralized exchange in several ways:​
  • Create new markets: Uniswap users can use smart contracts to create new markets for exchanging new pairs of digital assets.​
  • Swap assets via existing markets: Uniswap can use the platform to swap digital assets via decentralized markets that have already been created.​
  • Provide liquidity and earn rewards: Uniswap users can provide liquidity by staking—agreeing to not trade or sell—their digital assets. Those who stake their digital currencies on the Uniswap platform are rewarded with UNI.​
  • Participate in Uniswap governance: UNI token holders are empowered to govern the Uniswap platform, with voting power distributed in proportion to users' UNI balances.​
Participating in the Uniswap network requires connecting a compatible digital wallet. In addition, because the Ethereum platform collects fees for processing Uniswap transactions, Uniswap users need Ether (ETH) to pay any transaction fees that they incur.

3. Strengths and Weaknesses of Uniswap (UNI)

Pros of UNI include

  • Enables the decentralized exchange of many digital assets​
  • Smart contracts enable asset trading that may be cheaper and more efficient​
  • Uniswap users can earn UNI by agreeing to not sell or trade their cryptocurrency holdings​
  • Decentralized governance of the Uniswap platform enables anyone to participate​

Cons of UNI include

  • Uniswap only supports the exchange of Ethereum-compatible cryptocurrencies​
  • Proof of work is an energy- and resource-intensive process​
  • Users must own ETH to pay transaction processing fees​
  • Using a decentralized exchange requires a compatible, self-hosted wallet​

4. How can I invest in Uniswap (UNI)?


You can invest in Uniswap by purchasing UNI. The easiest way to buy UNI is through a centralized cryptocurrency exchange such as Coinbase or Kraken. You can also purchase UNI through the Uniswap platform by using another cryptocurrency such as Ethereum.

In your opinion, can Uniswap (UNI) rise up in the near future? Leave your comments in the comments section below.

All information contained on our website is published in good faith and is for general information purposes only. Any action readers take on information found on our website should be re-evaluated and at their own risk.

Conclusion

Overall, Uniswap was a shooting star at the beginning of 2021 which led the DEX market in terms of capital. It offers a wide range of swapping pairs as well as several other DeFi services. By becoming a crypto giant in DeFi space, Uniswap has a user-friendly interface that appeals to lots of newcomers in the crypto space.

Above we have just provided some important information about Uniswap (UNI). Let's discuss and leave your comments in the comments section below.

All information contained on our website is published in good faith and is for general information purposes only. Any action that readers take with respect to information found on our website should be re-evaluated and at your own risk.​
 

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