Cryptocurrencies
14
Apr
uniswap

This website has affiliate links. We may receive compensation if you visit partners we recommend. Read more about our advertising principles from the About Us page.

What is Uniswap (UNI)?

Uniswap is a cryptocurrency and the most prominent decentralized exchange on the market. American Hayden Adams founded Uniswap. Uniswap gained widespread attention during the DeFi boom of 2020. The Uniswap exchange was first launched on the Ethereum platform.

From a technical standpoint, the AMM algorithm and liquidity pools make Uniswap’s operation possible. Uniswap’s position in the DeFi sector has remained strong and stable. The UNI token is Uniswap’s governance token. Uniswap is a challenging investment that cannot be recommended for beginners.

What is Uniswap (UNI)?

Uniswap is a cryptocurrency and the most prominent decentralized exchange. Its cryptocurrency, UNI, is the protocol’s administrative token. The UNI token gives its holders the right to participate in Uniswap’s development. You don’t need to hold UNI tokens to use the Uniswap exchange.

The Uniswap exchange was launched in 2018 and has become one of the most essential decentralized finance (DeFi) protocols. Uniswap enables the trading of cryptocurrencies without centralized administration or disclosure of personal data. It runs automatically on smart contracts.

Basic information about Uniswap:

FeatureInfo
Category DeFi
Ticker UNI
Max supply 1 billion UNI
Circulating supply 0.6 billion UNI
All-time high (date) $44.97 (May 3, 2021)
All-time low (date) $0.419 (Sep 17, 2020)

You can follow the price of UNI from this page: Uniswap (UNI) price.

Almost all DeFi cryptos are governance tokens, like the UNI token. When Uniswap is used, trading fees are paid with the native token of the smart contract platform Uniswap is running. Uniswap is most commonly used on the Ethereum platform, where trading fees are paid with Ether (ETH).

In recent years, Uniswap has also been launched on other smart contract platforms. Newer versions have also been created, bringing new features to the service. The latest version of Uniswap is V3.

This article is a beginner’s guide to Uniswap from an investor’s point of view.

The history of Uniswap

American Hayden Adams founded Uniswap. Uniswap’s history differs from most cryptos, as it was initially just a one-man project. Typically, there are fintech companies and VC firms in the background of crypto projects. Hayden Adams details the history of Uniswap in this blog post. Below is a picture of Adams.

hayden adams

Uniswap’s story started at the end of 2017. In the summer of 2017, Hayden Adams was fired from Siemens as a mechanical engineer. At the urging of a friend, he started learning Ethereum programming languages, Solidity and JavaScript.

Adams began developing an Automated Market Maker (AMM) algorithm in 2016, based on an idea described by Ethereum founder Vitalik Buterin. In November 2017, Adams published Uniswap’s Proof-of-Concept.

Uniswap was not the first decentralized exchange in history. EtherDelta had already been launched, but its user interface was clumsy, and the project also encountered problems with regulators.

Adams is also not the developer of the AMM algorithm. However, he was the first to build a decentralized exchange (DEX) based on this concept, which became very popular. Today, hundreds of DEXes use AMM algorithms.

The first demo version of Uniswap was released in the spring of 2018. In the same year, Adams also met Vitalik Buterin and started gaining contacts from the Ethereum community. Little by little, more developers became interested in Uniswap.

Adams developed Uniswap for about a year with his own money while unemployed. Uniswap was launched at the Devcon 4 event at the end of 2018.

The crypto industry was at the bottom of the crypto bear market, and the DeFi sector was almost non-existent, so most investors missed the launch.

By the way, the name Uniswap comes from Vitalik Buterin. When Buterin heard the first name proposal, Unipeg (Unicorn + Pegasus), he stated, “Unipeg? It sounds more like Uniswap.”

The DeFi Boom of 2020 and the UNI Token

Uniswap gained widespread attention during the DeFi boom of 2020. Before this, the project was unknown to most investors, although it developed significantly from 2018 to 2019. DeFi was a small niche in 2018-2019 that was hardly covered in the media. Its development was followed only by a small group of enthusiasts.

Uniswap V2 was released in May 2020, marking a significant milestone. In the summer of 2020, the project also raised 11 million dollars from investors.

The DeFi boom of 2020 also brought new problems to Uniswap. Competing DEX protocol, SushiSwap performed a vampire attack, draining liquidity from Uniswap. This video describes a vampire attack in more detail.

vampire attack

SushiSwap cloned Uniswap and paid liquidity providers its SUSHI token as a bonus. At that time, Uniswap did not yet have a token. Since Uniswap is open source, anyone can copy its source code and build a new version.

SushiSwap’s attack led to Uniswap launching its cryptocurrency (UNI) in September 2020. About 50,000 ETH addresses received 400 UNI tokens as an airdrop worth a couple of thousand dollars per airdrop. The Uniswap airdrop was given to people who had used the exchange before.

In May 2021, Uniswap released a new version – Uniswap V3. It brought significant improvements in the efficiency of liquidity provision. Approximately 60% of the liquidity is today in V3 and 40% in V2.

Uniswap V3 currently runs on 14 other blockchains in addition to Ethereum.

Uniswap exchange

The Uniswap exchange was first launched on the Ethereum platform. Although two new versions of Uniswap have been created, its user interface has remained essentially the same. It is a decentralized exchange (DEX) built using smart contracts. Other DEXs also work with a similar idea.

DeFi apps don’t have customer service, user accounts, or KYC processes. There are also no order books in the background like in traditional crypto exchanges. Trades are executed in a liquidity pool, described in more detail in the next chapter.

You can use Uniswap with a browser at app.uniswap.org or download the mobile app from an app store. Below is a picture of the browser version, where one ETH is being swapped for USDC.

uniswap app

You also need a MetaMask wallet and some coins to pay trading fees. You need the native token of the smart contract platform where you use Uniswap. If you use Uniswap on Ethereum, you must have ETH tokens in your wallet. The same also applies to trades on Ethereum Layer 2s (Optimism, Base, Arbitrum, etc.).

Trade typically takes 15-20 seconds. You can view your trading history by checking your wallet address using a blockchain explorer like Etherescan.

Uniswap’s cryptocurrency (UNI) does not need to use Uniswap. The same applies to other decentralized exchanges and DeFi services. Transactions are always paid to the smart contract platform’s native tokens. The service’s cryptocurrency works mainly for administrative use but can also enable other functionality.T

The technology behind Uniswap

From a technical standpoint, the AMM algorithm and liquidity pools make Uniswap’s operation possible.

Decentralized crypto exchanges (DEXes) used to have a big problem compared to centralized ones: How to get liquidity for order books? Centralized crypto exchanges can deal with market makers, but a DEX cannot work like this.

Hayden Adams solved the problem using an Automated Market Maker (AMM) algorithm. In Uniswap, sellers and buyers use the AMM algorithm to communicate with a smart contract. It uses market data to determine exchange rates without relying on a traditional order book.

Another essential component of Uniswap is a liquidity pool (LP). When you trade on Uniswap, the coins come to your wallet from a liquidity pool. LPs consist of funds deposited by market makers. Liquidity pools distribute trading fees to depositors, which incentivizes investors to add liquidity to Uniswap

Liquidity pools are well explained in this video.

Liquidity pools have one significant advantage over traditional exchanges. Anyone can create a token and offer it liquidity on Uniswap. This has led to a boom in meme coins, with hundreds produced daily.

DEXes like Uniswap enable small projects to rise from a zero to a billion-dollar market cap in a couple of weeks. The downside of decentralization is that creating scam coins is just as easy.

Uniswap in the DeFi sector

Uniswap’s position in the DeFi sector has remained strong and stable. Uniswap has been the most prominent decentralized exchange (DEX) for years. At the time of writing, its volume is slightly more than half of the DEX market.

Below is a picture of trading volumes on DEXes. You can view up-to-date statistics on Dune Analytics from which the graphics were taken.

dex volume

As you can see from the graph, apart from Uniswap, only PancakeSwap stands out with a significant share. This Uniswap clone launched on BNB Chain in 2021 and has a good 20 percent market share.

If we compare Uniswap to all DeFi protocols, it is in sixth place regarding liquidity. Uniswap’s ranking has fluctuated between fourth and sixth place in recent years. However, trading volume is a more critical metric for Uniswap than liquidity.

Uniswap’s trading volume is comparable to even the largest centralized crypto exchanges. For example, in 2022 and 2023, its volume was higher than Coinbase’s for long periods.

The Uniswap token (UNI)

The UNI token is Uniswap’s governance token. It was launched in September 2020 to combat the vampire attack launched by competing DEX SushiSwap. Uniswap became too vulnerable to such an attack without its own token.

UNI is a governance token allowing holders to participate in developing the Uniswap protocol. You can read more about Uniswap’s governance process at uniswap.org/governance.

The initial distribution of the UNI token was as follows:

  • 60% allocated to the community
  • 21.27% allocated to the Uniswap team
  • 18.04% allocated to early investors
  • 0.69% allocated to advisors

A total of one billion UNI tokens were created. The community allocation was distributed in an airdrop.

The graph below shows Uniswap’s supply schedule.

uni supply

All initially created UNI tokens (one billion) will be distributed four years after the token launch. After that, an annual inflation of 2% will kick in. This means that there is no maximum supply for the UNI token.

Uniswap as an investment

Uniswap is a challenging investment that cannot be recommended for beginners. The reason for this is the role of the UNI token. The price development of Uniswap is tough to predict.

Many crypto investors have mistakenly assumed that Uniswap’s activity and liquidity drive the price of the UNI token. This doesn’t sound like a wrong assumption; the more liquidity and volume, the more valuable the protocol is.

However, Uniswap’s price has not moved in the same proportion as its trading volume or liquidity. And it’s not just about Uniswap because the same problem affects the entire DeFi sector. The success of DeFi apps does not seem to be directly correlated with the prices of their tokens.

So, what moves the price of the Uniswap token and other DeFi cryptos? This is a good question. In the summer of 2020, DeFi tokens skyrocketed because the entire sector came to investors’ awareness. The spring of 2021 also saw a new “renaissance of DeFi” when the popularity of smart contract platforms began to grow.

In recent years, DeFi tokens have become less attractive. This is because new technologies emerge every cycle that steal investors’ attention. Some of the latest additions include meme coins, AI cryptos, and RWA.

We do not recommend Uniswap for novice investors. The tightening of regulations will also cause problems for the DeFi sector. For example, the SEC has recently attacked Uniswap in the US. The EU is also likely to see tightening DeFi regulation. How this will affect Uniswap and other DeFi apps is not yet known.

If you want to invest in Uniswap, you can easily do so in the most popular crypto exchange. Our guide, How to Buy Uniswap, gives you step-by-step instructions on purchasing UNI tokens on Binance.

AboutBitcoin Team

Hey! We're the AboutBitcoin squad, a team of crypto lovers who've been all about cryptocurrency since 2017. Every week, we drop the latest news and cool insights from the crypto world. Come hang with us as we dive into the crazy, ever-changing scene of cryptocurrencies – it's gonna be an awesome adventure!