Is Uniswap a trusted exchange?
Dear friends, today we will discuss an interesting topic: Is Uniswap a trusted exchange?
What is Uniswap Exchange?
Uniswap is a decentralised protocol that was developed for the exchange of Ethereum-based DeFi tokens. As the founders stated in their blog, they were totally excited about the possibilities Ethereum offered, but also unhappy about its 2 key problems:
Etherum could only work with an ETH / ERC20 pair.
It could only work with a single liquidity provider.
Uniswap exchange review
With that in mind, they have created the Uniswap exchange without an order book, consequently, there are no buy/sell orders as in any other Defi exchange. The platform also does not match buyers and sellers to determine the price. Instead, there is an equation at the core of the protocol that performs this task to execute trades.
With the introduction of a price oracle functionality in Uniswap V2, the automatic calculation of the Ethereum price has become more complicated and at the same time more accurate. The token exchange is done through the automatic liquidity pools that support each trading pair, such as ETH / BAT, ETH / DAI, etc. As the interface is intuitive and clear, even novice users can quickly learn how to use Uniswap. Liquidity pools operate through smart contracts, which allow the exchange of tokens via liquidity pools. Pools are created by users of the platform as they invest their funds and receive 0.3% for each transaction in the pool as a reward.
Uniswap DEX is governed by the community with the help of UNI, the platform's native token that was distributed to all users after launch. It was also followed by a brief liquidity mining programme in its key groups.
Is Uniswap secure?
Although blockchain technology increases the efficiency of trading processes, cases of hacking of centralised exchanges are not entirely uncommon.
Decentralised exchanges, such as those powered by Uniswap, are considered to be more secure as they do not offer custodial services, so users retain full control over the security of their assets. In addition, customers do not have to provide their personal details to the network to start trading as they do on centralised cryptocurrency exchanges.
Therefore, they are protected from identity loss and data theft. At the same time, traders and investors should be very cautious when exchanging cryptocurrencies and tokenised assets, as fraudsters also flock to this market in search of victims.
Uniswap V2 versus V3
In May 2021, the project launched a major upgrade to Uniswap V3 with concentrated liquidity as its main feature. With this new option, liquidity providers gain greater control over price ranges and get fairer compensation for the risks they take.
In the blog post announcing the upgrade, the Uniswap team promises up to 4000 times greater capital efficiency compared to V2.
Another major improvement in the new version is non-fungible liquidity. Each position is now represented in the form of a unique token which adds one more great use case for this technology.
Uniswap is always striving to comply with new blockchains and implement modern methods to increase the demand for the token.
The development team, tries to use the latest achievements in the field of cryptography.
All this allows us to say with confidence that our platform is one of the best in the world.
Is Uniswap a big exchange?
- Uniswap is an open marketplace for all users who wish to include their coins on the platform. Although the lack of KYC procedure speeds up business processes, it makes customers more vulnerable to scams
- Scammers can also include their fake tokens in a Uniswap-based exchange, so customers should be very vigilant not to fall for these tricks. And complaints about this problem are many.
- Sometimes it can be very difficult to find out whether a given token is genuine or not due to the decentralised structure of the asset. Not a real token: CoinMarketCap warns about illicit tokens listed on Uniswap It is a common situation for scammers to take advantage of the pre-existing brand to attract more victims. Inexperienced users can buy fake tokens and lose their capital this way.
Moreover, in Uniswap, there are many fraudulent projects issuing their tokens that have no value. Therefore, a professional ICO review is required before investing in the project.
Uniswap mobile app - is part of a large ecosystem where the user can choose their own unique strategy.
On what basis does it work?
When a protocol works with a decentralized mechanism, there is no order book for traders. To provide the tokens needed for exchanges, liquidity is needed. Uniswap works on this basis. Recall that Uniswap is an automated liquidity registry. In practice, this means that there are smart contract models that define a standard method for making liquidity pools and corresponding markets compatible with each other. There is no order book, no centralized party and no central trading intermediary.
Uniswap's most significant difference from other decentralized exchanges is the use of a valuation mechanism called the "Permanent Product Market Making Model". We can add any ERC20 token to the exchange, providing it with the equivalent ETH value and the ERC20 token being traded. This process is called "adding fluidity" and the person doing it is called a "Liquidity Provider (LP)". Once we do this, we receive a portion of the fees generated by users exchanging the token.
Uniswap, instead of linking buyers and sellers to determine the transaction fee, uses the fixed equation X * Y = K. Where X and Y represent the amount of ETH and ERC20 tokens available in the liquidity pool, and K is a constant value. This equation uses the equilibrium between ETH and ERC20 tokens, and supply and demand, to determine the price of a specific token. Basically, Uniswap balances the value of tokens to exchange based on how many people want to buy and sell.
Much more than a DEX
Uniswap (UNI) in the world of cryptocurrencies and decentralized exchange made a name for itself, especially in the wake of the hype about decentralized financial services (DeFi) in 2020. Uniswap is not a standalone project on its own blockchain, but is a decentralized application (dApp) on the Ethereum platform. In essence, Uniswap sees itself as a decentralized trading platform that allows the exchange of Ether (ETH) for a large number of ERC-20 tokens.
While many other DEX (decentralized exchanges) struggle with not being user-friendly, costly and risky, Uniswap has been able to eliminate all of these problems at the root. Uniswap is a protocol on
Ethereum for exchanging ERC20 tokens and is designed for the community to exchange tokens without platform fees or middlemen. It provides liquidity through a simple mathematical equation and a pool of tokens without the need to match buyers and sellers.
In addition, it is one of the largest decentralized applications on the Ethereum blockchain. The advantages that helped Uniswap succeed in record time are easy to say. User-friendly operation and integration of an external wallet (e.g. MetaMask), full control over your own private keys, low fees and comparatively high liquidity (in contrast to many other DEXs). Unlike most exchanges, which are designed to charge fees, Uniswap is designed to function as a public good.
The Uniswap protocol's advantages include self-storage, which allows full control over personal funds. Therefore, the risk associated with centralized exchanges, where funds can be lost if the exchange is hacked or goes bankrupt, is completely absent. Since users have full control over their funds, they do not need to go through the KYC procedure and disclose their name, passport details, etc. This means that it is much faster to start using the exchange.
Additionally, the probability of personal information falling into the wrong hands if the exchange is hacked is significantly reduced. Another advantage of Uniswap is the low fees it charges. Uniswap charges a flat fee of 0.3% per transaction.
This is significantly cheaper than most decentralized exchanges. Because Uniswap is decentralized and gaining popularity among the community, many companies choose to launch their projects directly on Uniswap. Therefore, Uniswap users can access new tokens before others.
Among the disadvantages of Uniswap we can mention:
- Technical knowledge: token exchange requires some knowledge of cryptographic wallets and transactions.
- Slippage: there can be a difference in price on a trading pair from the time a transaction is sent and the time it is executed.
- Flash trades: malicious users can take advantage of imbalances between different markets.