Instead, liquidity pools can be used to provide instant and price-steady trading between two assets within a decentralized exchange. Users can supply their ‘liquidity’ to a pool by supplying tokens, which generates a yield for the user via fees while their tokens are locked in the liquidity contract. Unlike traditional exchanges, decentralized exchanges are unique because they allow users to swap tokens without third parties facilitating the transaction or taking control of funds. Swapping on the Uniswap is completely self-custodial, which means you always retain control of your assets — and no third party can take or misuse your funds.
Automated Market Maker (AMM) Model
LPs in these pools provide liquidity for a price curve between 0 and infinity, which means the capital provided by LPs in an AMM is evenly distributed across all price ranges. This means only a portion of the liquidity in the pool sits where most of the trading is taking place. However, it doesn’t make much sense to provide liquidity in a price range that is far from the current price or will never be reached.
What are Liquidity Pools?
Occasionally, you may have to manually search for the asset you want to swap to. The easiest way to do this is to paste the contract address of your desired token. This is also the safest way since tokens can have the same name as others and you can’t guarantee you are buying the real one without the contract address. However, if she had held onto her initial deposit of 1 ETH and 100 USDT, she would have ended up with a total value of $500 (1 ETH x $400 + 100 USDT).
Uniswap Labs builds and maintains products like the Uniswap web app, NFT aggregator, and Uniswap mobile wallet. Once you’ve connected your wallet, you can choose which network to swap, like Ethereum, Polygon, Arbitrum, Optimism, or others. It is governed by UNI token holders and stewarded by the Uniswap Foundation. A total of 1 billion UNI were minted at genesis — 15% of which were allocated to past and present users.
Uniswap uses an automated liquidity protocol to address the liquidity problem centralized exchanges face. This protocol incentivizes users how to calculate asset to debt ratio: 12 steps to become liquidity providers (LPs) by pooling their funds to create a fund to execute trades on the platform. In some sense, Uniswap v3 is a rudimentary way of creating an on-chain order book on Ethereum, where market makers can decide to provide liquidity in price ranges of their choice.
By following these steps, you can effectively use Uniswap to swap tokens directly from your Coinbase Wallet, leveraging the decentralized exchange’s features and liquidity. This has seen the proliferation and growth of a huge range of alternative platforms, including TRON’s JustSwap, Qtum’s QiSwap, and Kyber Network—all of which promise faster transitions, lower fees, or both. Uniswap also saw its daily transaction volume briefly exceeded by PancakeSwap—a similar automated market maker (AMM) built on Binance Smart Chain. In February 2021, it became the first decentralized exchange to process more than $100 billion in trading volume, and now frequently exceeds $1 billion in trading volume each day. This performance has seen it become not only the largest DEX by trading volume, but one of the top five most popular exchanges period.
Coinbase wallet is a great option for users who are relatively new to cryptocurrency and have assets stored in the Coinbase mobile app. The Uniswap Protocol is not controlled by a single entity, but rather a community of individuals and organizations is responsible for stewarding the world’s biggest AMM protocol. Users and organizations that hold UNI can use it to vote on decisions related to the Protocol. By following these steps, Uniswap users can seamlessly buy cryptocurrencies using their Robinhood account balance, providing a convenient and integrated experience for managing their digital assets. The platform also found itself at the center of the recent Unisocks (SOCKS) craze, a token backed by a physical pair of socks.
Setting slippage tolerances above 5% isn’t recommended, as you are essentially just paying a premium for the asset. Slippage occurs when the price you have opened a trade at, or wish to swap assets for, isn’t available anymore at the time of the execution of your order. This can happen for a number of reasons, especially in periods of high market volatility when many other users are trying to buy into a token – prices move quickly. Uniswap went live on the BNB chain after receiving 66% support from governance voters. This move can potentially provide users with more efficient and cost-effective trading options. It also means Uniswap users will be able to take advantage of BNB Chain’s high speed and low transaction fees.
- In some sense, Uniswap v3 is a rudimentary way of creating an on-chain order book on Ethereum, where market makers can decide to provide liquidity in price ranges of their choice.
- Do note that new use cases may emerge through community requests and governance votes.
- The Uniswap Protocol is the largest decentralized exchange for swapping cryptocurrency tokens on Ethereum and other popular blockchains.
- In Uniswap v3, LP positions are now represented by a non-fungible token (NFT).
- For example, LPs are exposed to higher risks in non-correlated pairs such as ETH/USDT and lower risks in correlated pairs such as stablecoin pairs.
You do have to use caution setting a transaction on Uniswap and simply leaving your computer. Setting gas fees too low on Uniswap can cause your transaction to stall, or fail completely. Be warned, even if your transaction fails due to low gas, you may still lose some ETH funds for initiating the transaction. Clicking the cogwheel will show a lightbox with multiple settings, but at the top, you will see ‘slippage tolerance’.
Tools & Features
The Uniswap Protocol is a decentralized marketplace to swap cryptocurrencies on the Ethereum blockchain. The Uniswap Protocol’s code cannot be changed or modified and will run as long as the blockchain is functional, even if Uniswap Labs disappears tomorrow. The Uniswap Protocol is already on several blockchains, like Ethereum mainnet, Base, Polygon, Arbitrum, Zora, Avalanche, Optimism, Blast, ZKsync, Celo, and Binance Smart Chain. Users pay transaction fees whenever they complete a swap using a trading pair, and a portion of this goes to the liquidity provider based on how many pool tokens they own. Around 150,000,000 UNI tokens were claimed by previous liquidity providers on the protocol, and 430,000,000 tokens were retained as governance treasury tokens.
Gas fees
After you’ve entered the amount you want to trade, the Uniswap auto router finds the best price and automatically calculates the amount of the other token you’ll receive. You’ll then need to confirm the trade by clicking «Swap» and approving the Ethereum wallet transaction. It is one of the most popular ways to exchange with the Uniswap Protocol. Uniswap’s token launch can be considered a response to the rise of SushiSwap, a clone of the protocol that added a token to encourage usage. In a more direct challenge, SushiSwap also tried to drain Uniswap of liquidity through a process called “vampire mining”. Finally (and perhaps least essentially) it also generates non-fungible tokens (NFTs) based on LP positions, turning them into «on-chain generated art».
Let’s say you deposit a trading pair to Uniswap’s liquidity pool as a liquidity provider (LP). You can commit any pair of tokens of equal value, either ETH and one ERC-20 token, or two ERC-20 tokens. In return, you’ll receive «liquidity tokens» as an LP, representing your share of the liquidity pool and the corresponding portion of the trading fees generated by the pool.
In conclusion, integrating Uniswap with platforms like Coinbase, Robinhood, and Tangem Wallets enhances accessibility and usability for users seeking decentralized trading options. By connecting these platforms to Uniswap, individuals can seamlessly navigate between traditional and decentralized finance, leveraging familiar interfaces and wallets. Consider using platforms like eToro, Robinhood, Uphold, or Coinbase for an integrated Uniswap experience, enabling seamless engagement with decentralized trading and asset management. Uniswap is a decentralized exchange (DEX) protocol built on the ethereum blockchain, offering a unique trading experience through its automated liquidity protocol. In May 2021, Uniswap V3 launched, with the latest iteration of the DEX adding a number of new features. First up is concentrated liquidity, which enables liquidity providers to allocate liquidity within a custom price range.
Instead, it’s best to either use the network recommended gas prices at the time (medium speed), or opt to pay more gas for a faster transaction to ensure your swap completes successfully. If you aren’t in any rush to swap your assets, consider checking back in on Uniswap when gas prices are down, to bring down your costs. As a result, many crypto traders keep a close eye on new additions to Uniswap to make the most of brand new trading opportunities.
In Uniswap v3, LP positions are now represented by a non-fungible token (NFT). This occurs as there is now less ETH in the pool after the transaction and we know that the total liquidity of the pool (k) must remain constant; this mechanism determines that the price of ETH will be k/x. Ultimately, the price paid for the ETH in the pool is based on how much a given trade shifts the ratio between x and y. The Uniswap Protocol is one of crypto’s safest and most secure protocols.