What is Uniswap and how does it work
What is uniswap and how it's work
Apr 04, 2022
Create your own DEX with like Uniswap our Uniswap clone script. Get decentralized exchange development from BlockchainX experts.
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Create your own DEX with like Uniswap our Uniswap clone script. Get decentralized exchange development from BlockchainX experts.
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What is Uniswap and how does it workdoes it work
One of the best-known Decentralized exchange in the blockchain world is Uniswap, and it is not for less, because this protocol has become one of the largest DEXs in the crypto ecosystem, with a locked value that amounts to 5 billion dollars. With this, Uniswap becomes one of the main contenders for centralized solutions, and leaves behind the belief that this type of technology could not become truly viable.Uniswap clone
But how has Uniswap achieved this? What technology is behind its design? You will learn this and much more below.
What is Uniswap?
Uniswap is a DEX (Decentralized EXchange or Decentralized Exchange), which allows you to exchange your cryptocurrencies for others, using smart contracts on the Ethereum network. This fact already tells us one thing: Uniswap works with ERC-20 Ethereum tokens . Let us remember that an ERC-20 token is a type of standard token within Ethereum and there is a great variety of these types of tokens. In fact, there are currently more than 420 thousand different ERC-20 tokens on Ethereum, which gives us an idea of the huge ecosystem that exists. It is precisely this point that led Uniswap to its immense success: there is a huge community that needs this exchange functionality and, if you can make money with it, so much the better.
Uniswap clone script
Uniswap clone software
Who created Uniswap?
The idea that shaped Uniswap began in the mind of Vitalik Buterin in a paper posted on the Ethereum Research forum. Under the name "Improving front running resistance of x*y=k market makers", Buterin showed how Ethereum and its smart contracts could be used to build advanced financial systems for market makers. This thread created a huge discussion about the possibilities, among which one answer stands out, that of Hayden Adams. Adams was a young developer in the Ethereum community, who was working on a market maker implementation like the one shown by Buterin. decentralized exchange script
How does Uniwap work?
Uniswap is now much more than just a DEX. First of all, we have that Uniswap was created as an AMM (Automated Market Maker) protocol. This means that Uniswap is able to enable its users to create markets from which third parties can benefit. The creation of these markets is self-sustaining, allowing the protocol to generate income that serves to encourage the injection of liquidity in exchange for a small interest to its investors. They are the well-known pools, where investors inject tokens to increase its liquidity, and as it is used by third parties, these transactions generate commissions that are used to maintain the protocol and give rewards to investors in said pool.It is, in a few words, the germ of the well-known liquidity mining.
Liquidity control in the pool Now, at this point we can say that liquidity pools are the heart of Uniswap. The creation and management of them is what allows Uniswap to provide all the services for which it was designed. But also, it is the "hook", that which attracts investors to invest in Uniswap with the promise of making a return on their investment. Let us remember that each token in a liquidity pool is an opportunity for investors to obtain rewards.This is possible because your tokens are used to carry out trades and other operations that generate commissions within Uniswap. From these commissions, the profits come both for the development of the protocol and those that go to the investors in each pool. Thus, as a pool has a lot of use, the greater the profits it generates in relation to its liquidity.
Oracles and commissions Oracles also have an important role within Uniswap, as the platform needs information about the price of tokens that are on its platform. On Uniswap, this feature is controlled by Time Weighted Average Price (TWAP) oracles. This type of oracle is capable of offering information about the different tokens within Unsiwap, and feeding the system to recognize and configure the prices within the protocol. This function of the oracles is fundamental because the system of commissions and rewards of the Uniswap protocol depends on it.
In the current V3 of Uniswap, the system is maintained and has become much finer and more configurable. For example, TWAP oracles have been made more efficient in order to avoid unnecessary Gas expenses. At the same time, the commissions in V3 have been adjusted to allow for so-called flexible commissions. In this way, LPs have three different types of commissions per pair: 0.05%, 0.30% and 1.00%. In this way, LPs can better adapt to the volatility of the pairs they trade with.
What is the UNI token or Uniswap Coin?
The arrival of competitors like SushiSwap (a clone of Uniswap), with its application of yield farming thanks to its SUSHI token, made the SushiSwap community respond, and the best response was to launch its own token: the UNI token or Uniswap Coin. Thus, on September 16, 2020, Uniswap announces the launch of this new token thought of three fundamental points:
1. Offer a new reward mechanism for participating in Uniswap pools and services. 2. Reward those who believed in the project from the beginning. 3. Allow for a more decentralized on-chain governance system.
THANK YOU
One of the best-known Decentralized exchange in the blockchain world is Uniswap, and it is not for less, because this protocol has become one of the largest DEXs in the crypto ecosystem, with a locked value that amounts to 5 billion dollars. With this, Uniswap becomes one of the main contenders for centralized solutions, and leaves behind the belief that this type of technology could not become truly viable.Uniswap clone
But how has Uniswap achieved this? What technology is behind its design? You will learn this and much more below.
What is Uniswap?
Uniswap is a DEX (Decentralized EXchange or Decentralized Exchange), which allows you to exchange your cryptocurrencies for others, using smart contracts on the Ethereum network. This fact already tells us one thing: Uniswap works with ERC-20 Ethereum tokens . Let us remember that an ERC-20 token is a type of standard token within Ethereum and there is a great variety of these types of tokens. In fact, there are currently more than 420 thousand different ERC-20 tokens on Ethereum, which gives us an idea of the huge ecosystem that exists. It is precisely this point that led Uniswap to its immense success: there is a huge community that needs this exchange functionality and, if you can make money with it, so much the better.
Uniswap clone script
Uniswap clone software
Who created Uniswap?
The idea that shaped Uniswap began in the mind of Vitalik Buterin in a paper posted on the Ethereum Research forum. Under the name "Improving front running resistance of x*y=k market makers", Buterin showed how Ethereum and its smart contracts could be used to build advanced financial systems for market makers. This thread created a huge discussion about the possibilities, among which one answer stands out, that of Hayden Adams. Adams was a young developer in the Ethereum community, who was working on a market maker implementation like the one shown by Buterin. decentralized exchange script
How does Uniwap work?
Uniswap is now much more than just a DEX. First of all, we have that Uniswap was created as an AMM (Automated Market Maker) protocol. This means that Uniswap is able to enable its users to create markets from which third parties can benefit. The creation of these markets is self-sustaining, allowing the protocol to generate income that serves to encourage the injection of liquidity in exchange for a small interest to its investors. They are the well-known pools, where investors inject tokens to increase its liquidity, and as it is used by third parties, these transactions generate commissions that are used to maintain the protocol and give rewards to investors in said pool.It is, in a few words, the germ of the well-known liquidity mining.
Liquidity control in the pool Now, at this point we can say that liquidity pools are the heart of Uniswap. The creation and management of them is what allows Uniswap to provide all the services for which it was designed. But also, it is the "hook", that which attracts investors to invest in Uniswap with the promise of making a return on their investment. Let us remember that each token in a liquidity pool is an opportunity for investors to obtain rewards.This is possible because your tokens are used to carry out trades and other operations that generate commissions within Uniswap. From these commissions, the profits come both for the development of the protocol and those that go to the investors in each pool. Thus, as a pool has a lot of use, the greater the profits it generates in relation to its liquidity.
Oracles and commissions Oracles also have an important role within Uniswap, as the platform needs information about the price of tokens that are on its platform. On Uniswap, this feature is controlled by Time Weighted Average Price (TWAP) oracles. This type of oracle is capable of offering information about the different tokens within Unsiwap, and feeding the system to recognize and configure the prices within the protocol. This function of the oracles is fundamental because the system of commissions and rewards of the Uniswap protocol depends on it.
In the current V3 of Uniswap, the system is maintained and has become much finer and more configurable. For example, TWAP oracles have been made more efficient in order to avoid unnecessary Gas expenses. At the same time, the commissions in V3 have been adjusted to allow for so-called flexible commissions. In this way, LPs have three different types of commissions per pair: 0.05%, 0.30% and 1.00%. In this way, LPs can better adapt to the volatility of the pairs they trade with.
What is the UNI token or Uniswap Coin?
The arrival of competitors like SushiSwap (a clone of Uniswap), with its application of yield farming thanks to its SUSHI token, made the SushiSwap community respond, and the best response was to launch its own token: the UNI token or Uniswap Coin. Thus, on September 16, 2020, Uniswap announces the launch of this new token thought of three fundamental points:
1. Offer a new reward mechanism for participating in Uniswap pools and services. 2. Reward those who believed in the project from the beginning. 3. Allow for a more decentralized on-chain governance system.
THANK YOU
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