What is Uniswap?
Uniswap is an automated liquidity protocol and one of the decentralized exchanges (DEXmost popular today.
This time due to the development of decentralized finance (DeFiso Uniswap is the best choice because of its fastness and convenience. Users can become Liquidity Providers (LP) for a pool on Uniswap by sending an equivalent value of the token in exchange for other tokens in the pool.
In this article, let's Blogtienao Find out why Uniswap is so popular and will guide the newbies in great detail. Besides, also suggest some tips when using Uniswap.
Basic interface for you to manipulate with Uniswap:
What features does Uniswap have?
There are two main functions when it comes to Uniswap: Swap and Pool:
- Swap: Or called swapping, this feature allows swapping Ethereum and tokens ERC-20 different.
- Pool: This feature of Uniswap helps users to make money through becoming LP. Done by sending the token to one Smart contract And in exchange you will receive tokens at that pool.
It can be simply visualized that these two features work according to the Uniswap scheme as follows:
How does liquidity provision on Uniswap work?
How liquidity provision works is shown in the equation: x * y = k
In the equation above, x and y represent the amount of available ETH and ERC20 tokens, respectively. Whereas k represents a constant that could be set by the creators of the exchange contract on Uniswap. The constant k is always constant.
Based on the above graph, the graph shows constant k as a function. The x axis represents token A (ERC-20) and the y axis represents token B (ETH).
The first red dot represents current price to swap this ETH-ERC20 pair based on ETH's current balance against ERC 20 tokens.
For example with an ERC-20 token swap for ETH the result would be as follows:
As a result, the ETH token balance decreases and the ERC20 token balance increases. This means that the red dot will move to a new location as brothers have more ERC20 tokens and less ETH in the liquidity pool. In other words, it's a very simple pricing algorithm in which the rate moves along the chart.
Now that you understand the liquidity offers on Uniswap, let's look at the v1 and v2. V2 comes with many new functions and updated existing features.
Difference between Uniswap V1 and Uniswap V2
Many features introduced in Uniswap V2 provide ERC 20 to ERC 20 token pools, such as base price, flash swap.
Let's analyze the differences between the two versions
Uniswap V1 swap
Uniswap V1 always performs two transactions. The first transaction to swap the ERC20 token for ETH and the 3rd to swap the ETH of back to the desired ERC20 token. In other words, the end user has to pay twice.
This causes some limitations when using Uniswap:
- Fee is higher
- Uniswap is closely tied to the use of ETH
- ERC20 tokens cannot be swapped directly with other ERC20 tokens.
For the above reasons, Uniswap V2 was created.
Uniswap V2 swap
Uniswap V2 offers end users 3 different options to swap their tokens, using "Router Contract".
Router Contract is aware of all exchange contracts that implement the Uniswap V2 protocol.
Here are three swap possibilities:
- One is a direct swap between two ERC20 tokens. For example, two stablecoins like DAI / USDC can be very useful for traders.
- Traditional swaps through ETH, where you have to pay a double fee.
- Swap Custom path in which you can build a more complex path like DAI / ETH, ETH / BAT, BAT / USDT and USDT / USDC to swap your DAI to USDC. Usually, this provides the trader with arbitrage opportunities.
Evaluate the advantages of Uniswap
Do you know why Uniswap is so popular? The features and how it works will help you understand why it's popular:
- Low transaction fees: Uniswap only charges a flat rate of 0,30% per transaction. This is much cheaper than most decentralized exchanges. Did they mention that in the future it could be reduced to 0.25%.
- Not required KYC (Identity verification): They do not require you to go through the KYC process (ie, declare your full name, or your identity card will be kept confidential, ...). This allows you to trade on the exchange faster, and information will not fall into the wrong hands if the exchange gets hacked.
- Self-management of property: You have complete control over your money. This will help avoid the risks associated with decentralized exchanges, where you can lose money if the exchange goes bankrupt or gets hacked.
- Opportunities to access new coins / tokens: One thing you often encounter in centralized exchanges is: Certain crypto projects will have to go through a censorship process with the coin / token listed. On Uniswap, users can get these new tokens first. And with drastic fluctuations in token price, especially when they first launch.
Is Uniswap safe? Assess the weaknesses and risks
Fake smart contract
Smart contracts of fake projects, fake real contracts, are one of the biggest problems of Uniswap because anyone can create ERC20 tokens and add it to Uniswap.
The problem with that is that as soon as the major liquidity provider decides, he can withdraw the pool's liquidity, leaving other users at a loss. So there are people who took advantage of this on Uniswap with the aim of tricking people into sending their money to these guys in exchange for scam coins. Users must be very careful in this regard.
Transactions will not be 100% completely successful on Uniswap, transactions are still at risk of failure. This is influenced by several reasons such as:
- You pay too little Gas charges cause the transaction to take longer than the fixed time.
- The price jumps over the maximum price you are willing to pay for that token before the transaction is complete.
- Finally, despite the liquidity creation protocol, sometimes Uniswap still doesn't have enough liquidity in the pool.
Several reasons above affect, cause your transaction to fail, but rest assured, you will get your money back and so you will not lose money. So this case number two is better.
Since writing this article, Ethereum's gas fees are skyrocketing due to the massive amount of network usage: Network congestion at 97%.
This makes using Uniswap very expensive, as a single token transaction can go up to $ 20 (depending). With Uniswap, you also have to approve every new token you want to swap and this also incurs a fee of up to $ 2.
There are self-impersonating sites Uniswap. The domains in this guide are the only 2 valid domains you should be using, Everything else that isn't the original Uniswap and potentially a scam.
Things to know before using Uniswap
As mentioned, this is no ordinary exchange. That is, there is no buy order and no specific list, anyone can add liquidity to a particular pair in Uniswap. They can quickly take away that liquidity, making it difficult for you to swap your tokens again. That is why it is essential to ensure that the liquidity for the currency pair you want to trade is locked.
There are two main domains that you need to care about:
Uniswap.info: Where you track data on an exchange, where you check volume on individual currency pairs, search for currency pairs, check the current liquidity, the price of tokens, ...
At this interface, you can check general information such as ETH price, total liquidity on the exchange, as well as total volume and number of transactions.
The Search bar is where you use it to identify a particular token. Scroll down on the main page, you will also see the pools with the highest volume and liquidity.
Trading guide on Uniswap
Uniswap helps you to connect your Exchange directly with authorized wallets such as: MetaMask, Coinbase wallet, WalletConnect, ...
How to connect Metamask with Uniswap
If you do not know how to create and use a MetaMask wallet, you should read this article:
After completing basic operations with MetaMask, please perform the connect process as follows:
Step 1: Access https://app.uniswap.org/#/swap
Then, click "Connect to a wallet"In the right corner of the screen.
Step 2: Proceed to select the wallet you want to connect. In my case, you choose MetaMask wallet.
A window pops up asking for the account you want to connect to Uniswap (there can be multiple accounts on MetaMask, read more in the article section). Click "Next"To go on.
Click "Connect"To end the connection. So you are ready to use the feature on Uniswap already.
Now the feature I want to guide the brothers is the swap of ETH with other ERC-20 tokens.
How to swap tokens on Uniswap
This feature, as I mentioned, helps you to swap between ERC-20 tokens.
Proceed as follows:
- Enter the amount of ETH you want to Swap in line "from"
- Select the token you want to redeem from the drop-down menu.
A list of tokens appears in the drop-down menu, select the token in the list, if that token does not have a list, paste its contract address. Uniswap automatically calculates the number of tokens that will be exchanged in the "To" line. Press "swap"To continue.
For example, if I swap 0.1 ETH, I have 23.813 USDT in my wallet.
Step 2: Brothers are redirected to confirm swap implementation for the selected token:
- The amount you are swapping and the tokens you receive (in this case, ETH and USDT)
- Minimum received: The guaranteed minimum amount you get if the price drops while the transaction is processed
- Price Impact: The difference between the market price and the estimated price provided by Uniswap
- Liquidity Provider Fee: The fee you will pay for Uniswap. This is usually 0,03% of transactions.
Click "Confirm swap”To confirm when you have checked the information.
Step 3: A window pops up by the MetaMask wallet, the last thing you need to confirm is the gas fee. Enter the fee you want in the box “Gas price“. Press "Confirm”To complete.
You will be given a link to Etherscan to view your transaction details. This is the end of the process when you use the swap feature on Uniswap.
Slippage Tolerance (Slippage resistance)
Slippage in a trade occurs when the price at which the order was last executed does not match the price at the time you confirm the trade. When trading on Uniswap, this is called “slippage tolerance” and is indicated in percent.
For the coin / token whose price is increasing, there's a lot of competition to process the transaction and get the required tokens. In that case, you can increase your chances of your trade being processed faster by increasing slip tolerance. This will also avoid failed transactions.
So, if you set the slippage Tolerance to 1%, you might get a number that might be 1% lower or higher than what is initially displayed.
For example: You swap ETH to get USDT
The estimated number of tokens that the brothers will receive for 0,1 ETH is 34.2563 USDT. But the minimum received figure is 1% lower to 33.91 USDT (this is the worst case scenario that can happen. If the swap cannot be executed at this rate, the transaction will not be executed.
You can change the Slippage Tolerance by clicking the gear setting in the top right corner.
The trade expiry indicates the maximum time that you are ready for a swap to be processed.
In the case below, I set it to 20 minutes, but it can be changed manually. If the pending transaction is longer than the time specified in this table, the transaction will refund the brothers.
Instructions to speed up transactions on Uniswap
To speed up transactions it is the setting up of transaction gas. Since you are using MetaMask as a guide, the guide for Metamask, wallets outside of MetaMask may be different.
The first window will pop up after you confirm your transaction as follows:
What you have to do is to set up GWEI and Gas limit depending on your preferences and how fast do you want the transaction to be done? Select "Save" and confirm the transaction.
Instructions for using Liquidity Pool on Uniswap
Liquidity Pool concept on Uniswap
Liquidity Pool or liquidity group. Basically, this is a pool of different tokens located in smart contracts. Users can exchange tokens in pools using Ethereum as a path.
A key feature of Uniswap is that anyone can create new exchange pairs in a Liquidity Pool for any token. Unlike centralized exchanges, where exchanges specify which trading pairs are available.
How it works
One note before using this feature is:
Need to deposit both Ethereum and the token you want to join the pool. For example, if I want to join the ETH / USDT pool, I have to deposit an equivalent amount of ETH and USDT into the pool at the same time. Amounts given to these pools will be traded by others. Therefore, there will be fluctuations in the proportion of ETH and USDT that the brothers own.
Choose "Common"To do this, you have the next two options:
- Create a pair: Add a new currency pair to the pool and you become the first Liquidity provider in this pool.
- Add Liquidity: Add liquidity for some pool
If someone wanted to sell ETH for USDT, they would mine the brothers' Liquidity account. Then, the USDT you give to the pool will be used to buy ETH. Therefore, there will be a higher rate of USDT compared to ETH in the participating pool. Conversely, if someone wants to sell their USDT for ETH, they will take out ETH and narrow the liquidity of your ETH.
Explain the reason above, because they receive Liquidity Provider fees from the people swaps in their pool. The fees earned are ultimately proportionally split between all of the pool's liquidity providers based on the proportion they contribute to the exchange.
Uniswap's market position
The newer DEX exchanges have made significant improvements over their predecessors in terms of liquidity and user experience. Lately, the growth of the DEX has exploded to the point where trading volume is starting to match the volume seen on centralized exchanges.
Uniswap, by far the leading DEX in terms of volume and liquidity. So far in September, the trading volume is 9 billion dollars.
Some tips when trading on Uniswap
Speed up transactions on Uniswap
This usually happens while a brother is competing with another person to process a transaction. You just need to fill in a higher gas fee than you want to export, this step is the final confirmation in the transaction calculation section you mentioned above.
How to identify coin, token scam and eliminate them
Any coin can be added to Uniswap, so there are a lot of scams and fake coins on Uniswap. So if you deposit your money to buy these coins or scam tokens, you lose money.
You can verify if a coin or token is real by checking it on Coingecko. To do this, search for the coin or token you want to trade. Find and click a trading pair for Uniswap. After that, the brothers will be redirected back to transactions on Uniswap.
Also, you can check it out on Etherscan. You should read this article to better understand:
What is Uniswap exchange coin?
UNI is the governance token of the Uniswap ecosystem. Allows sharing of community ownership through the implementation of the governance system on-chain.
Uniswap is now particularly well positioned for community-led growth, development, and self-sustainability. The creation of its own token serves this purpose. The governance system will facilitate the development and use of the protocol, as well as the future development of the wider Uniswap ecosystem.
The basic information about UNI tokens is as follows:
|Max Supply||1.000.000.000 UNI|
|Circulating Supply||110.000.000 UNI|
Blogtienao There is a separate analysis of Uni tokens you refer to in the article:
Using the Uniswap web transaction
This is in my personal opinion. Why do I say that, because you absolutely can use wallets on mobile applications, it is available in iOS and Android. But when using experience I found the following problems:
- It takes quite a bit of action on different windows
- Parallel handling issues such as token, coin scam (Check on Coingecko as mentioned)
So, I think if you should use it on the computer, everything will be faster. However, it must be mentioned that using the phone is convenient for everyone to move.
There are quite a few Liquidity Providers like Uniswap that are still active today. But Uniswap is probably a leading representative in the cryptocurrency exchange ecosystem. Stay tuned Blogtienao on social channels so you can get the latest updates on this floor. Hopefully, in the future there will be more development for a better user experience.