South African cryptocurrency investment platform Revix unpacks some of the facts – and myths – surrounding the thrilling uniswap.
1. Uniswap is both, a cryptocurrency and a decentralised exchange — Fact
Uniswap is the largest decentralised exchange (DEX) in the crypto space. It’s a protocol built on the ethereum network, which is used for swapping ERC-20 tokens. This means that it does not list tokens trading on other blockchains and only works with tokens built on the ethereum blockchain.
The uniswap token (UNI) powers uniswap and anyone holding the cryptocurrency can participate in the protocol’s governance and gain exposure to this emerging world of decentralised finance (DeFi) through the world’s largest decentralised exchange.
Uniswap uses multiple crypto assets, including its native UNI cryptocurrency, to provide a service similar to those of a traditional exchange. The difference is that Uniswap has no central operator or administrator, and therefore it is fully decentralised. Think of it as the decentralised version of the New York Stock Exchange.
2. The exchange operates as an automated market maker — Fact
Uniswap is the largest decentralised automated market maker (AMM) in the world.
Traditional exchanges require buyers, sellers, a central order book and a central reserve of assets. In contrast, AMM exchanges crowdsource liquidity and use smart contracts to execute trades.
AMM’s enable unstoppable, automated and decentralised trading.
Uniswap trades assets by using smart contracts, which allow users (called liquidity providers) to deposit crypto assets into pools. These smart contracts then allow other users (called traders) to buy and sell these assets. Users who trade these pool assets pay a fee that is then distributed to all the liquidity providers proportionally (based on their contribution to the pool).
Each Uniswap pool holds two tokens, which together represent a trading pair for those assets – for example, ether (ETH)/USDC).
Uniswap uses a pricing mechanism called the “constant product market maker model”. Its formula (x * y = k) is used to determine the pricing for each trading pair. x and y represent the pool balance of each token, and k is the total constant price of said pool.
3. Users are not allowed to lend their crypto to Uniswap — Myth
Lending crypto to the uniswap protocol is a fundamental part of how uniswap’s decentralised exchange works; therefore, users are allowed to lend their crypto to the uniswap liquidity pools (each pool represents a trading pair).
These users that lend their crypto are called “liquidity providers” (LPs). Once lending your tokens to a pool, LPs are given tokens that represent their share of the pool (LP tokens). Due to providing liquidity, the LPs are entities to the 0.3% trading fee uniswap charges on transactions. The uniswap network rewards the trading fees to the LPs in the percentage share they hold of the pool they provided liquidity to.
4. Uniswap runs on the bitcoin blockchain — Myth
Uniswap is built on the ethereum network and, therefore, can only exchange tokens built on the ethereum blockchain (ERC-20 tokens).
5. Uniswap possesses the highest trading fees in the market — Fact and myth
When compared to centralised exchanges, uniswap has higher fees. This is due to the fact that it is built on the ethereum blockchain, and all transactions incur gas fees as well as trading fees (0.3%) to interact with the protocol.
When compared to similar AMMs like sushiswap, which also runs on the ethereum network, the base trading fees are the same (0.3%). Yet uniswap does have greater liquidity than that of sushiswap, and therefore we might see more price slippage on sushiswap. This would translate to the user incurring a worse execution price on sushiswap.
Where do I gain exposure to uniswap?
Due to the hotly anticipated release of Uniswap, Revix has decided to run a two-fold promotion:
- The first 600 new sign-ups will receive double their initial deposit up to R500 using the promocode DOUBLEUP — this promotion is valid from 17 to 31 August 2021, so do not miss it.
- There will be zero buying fees with rand and British pounds on uniswap purchases for one week (20 to 26 August).
Revix brings simplicity, trust and great customer service to investing. Its easy-to-use online platform enables anyone to securely own the world’s top investments in just a few clicks. Revix guides new clients through the sign-up process to their first deposit and first investment. Once set up, most customers manage their own portfolio but can access support from the Revix team at any time. For more information, visit Revix.
This article is intended for informational purposes only. The views expressed are not and should not be construed as investment advice or recommendations. This article is not an offer, nor the solicitation of an offer, to buy or sell any of the assets or securities mentioned herein. You should not invest more than you can afford to lose, and before investing, please take into consideration your level of experience and investment objectives and seek independent financial advice if necessary.
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