The Uniswap protocol is DeFi’s biggest decentralized exchange (DEX). Due to the crypto bull run of 2021, Uniswap saw its total trading volume surpass $1 trillion, rivaling centralized crypto exchanges like Binance or Coinbase. As a decentralized DeFi protocol, Uniswap allows for peer-to-peer trading without any middleman involved. The DEX relies on liquidity providers instead of privately-managed databases to keep order books running smoothly.
In addition, there is the Uniswap token (UNI), which is an ERC-20 token that allows for community ownership and active governance of the Uniswap protocol. UNI token was launched in September 2020 and issued to Uniswap protocol users for free as a means of rewarding them with a governance token. As such, UNI was one of DeFi’s first major airdrops. Each and every early user got a minimum of 400 UNI tokens.
The UNI token is unique in the sense that it serves to enable shared community governance regarding the growth and development of the Uniswap protocol. UNI token holders can contribute to overseeing the protocol and its wider ecosystem, in a trust-minimized way. According to its site, the uptake of Uniswap protocol products should have a positive impact on UNI price, thus incentivizing UNI holders to keep supporting the Uniswap ecosystem. It is worth mentioning though that currently, UNI swap holders only have governance rights, while they do not get any cash flow or dividends from holding the token.
The maximum supply of UNI tokens is 1 billion units.
The Uniswap protocol was founded by Ethereum developer Hayden Adams. The protocol was the result of a plan to introduce automated market markers (AMMs) on Ethereum to make decentralized exchanges popular among a wider user base. While working on Uniswap, Adam was in close touch with Ethereum founder, Vitalik Buterin.
Price history
UNI went live at the end of Q3 2020. After its launch, the token quickly increased in value to over $7 before correcting to below $5 for a while. With the bull run of 2021 starting, the UNI token began to rise in the preceding months, reaching an all-time high of $42 in May 2021.
Throughout the remainder of the year, UNI’s price continuously decreased, mirroring the unsuccessful price performance of the wider DeFi ecosystem during the 2021 bull run. Until year’s end, the token price fluctuated between $15-$30. It was in the beginning of 2022, when UNI took another hit, correcting even further. In June 2022, its price continuously fell to almost $4. Since then, the token’s price has slightly recovered. By mid-October 2022, UNI was trading around $6.
How does Uniswap (UNI) work?
The Uniswap protocol exists to provide liquidity to traders and investors within the DeFi space. The protocol works by automating the process of market making, incentivizing the so-called liquidity provider to supply liquidity to the DEX in a decentralized manner. By offering an open-source protocol, the project makes it easy for anyone to create a liquidity pool for any token pair. There are no KYC requirements, neither for traders nor for liquidity providers.
Uniswap operates on two smart contracts known as “Factory” and “Exchange.” The former is responsible for issuing new tokens on the platform, while the latter facilitates the trading of tokens. To make markets, the protocol uses a pricing method that calculates the average price of an asset during a particular period. This is done through the use of oracles. UNI token holders can take part in protocol governance for future enhancements to the protocol.
The original version of the Uniswap protocol was launched in 2018 as one of the first successful DEXes. The protocol was further transformed into Uniswap v2 in 2020. The upgraded protocol processed billions in transactions making it the largest decentralized spot exchange in the world. Eventually, in 2021, Uniswap v3 was launched on Ethereum with the aim of enabling quicker and cheaper transactions. At the same time, Uniswap V3 also tackled capital inefficiency challenges and other issues plaguing decentralized exchanges.
FAQs
Does Uniswap have a future?
The upgrade to V3 is successfully providing greater capital efficiency for liquidity providers, better trade executions, and improved infrastructure. With the upgrade, there has been continuous interest in Uniswap’s decentralized exchange protocol. To this date, Uniswap is the most popular and most widely used decentralized exchange. It seems highly likely that Uniswap will keep on being a dominant player in the world of DEXes going forward.
Is Uniswap a good investment?
Given the success of Uniswap, it can be assumed that the UNI token should also fare well. After All the token is allowing for governance in the Uniswap protocol. Also, out of all the DeFi protocols, Uniswap still has the largest treasury, coming in at $2,7 billion in October 2022. This gives the protocol a great war chest to further innovate. Regarding its token though, there is still an open discussion about whether or not the UNI token will successfully accrue long-term value. Readers should do their own research (also referred to as DYOR in the space), to make sure they know what they are investing in.
Can Uniswap (UNI) reach $100?
There are some experts that believe UNI may reach the $100 mark in the long term based on its advanced protocol fundamentals, important function within DeFi, and active community of supporters. In the end, no one knows the price it could reach in the future and as with any cryptocurrency, it is plausible that such price targets won’t be reached.
Popular criticisms
As already mentioned, popular criticism regarding Uniswap is the fact that its token has no in-built dividend or cash-flow mechanism. Some holders have been criticizing that this will be a prerequisite to give the token long-term value.
Other people have been criticizing Uniswap on the basis of high fees related to using the protocol on the Ethereum blockchain, where the DEX has the highest liquidity. Uniswap itself has countered this criticism by launching its decentralized exchange on various other smart-contract blockchains besides Ethereum. Yet another criticism is that liquidity providers run the risk of impermanent loss when supplying unstable assets to Uniswap liquidity pools.
Comparisons to other projects
The Uniswap protocol is sometimes compared to SushiSwap. Both are decentralized exchanges built on the Ethereum blockchain. However, where UNI has been around for some time and handles more trade volumes, SUSHI, on the other hand, offers unique features such as yield farming and additional incentives for token holders such as a cash-flow component. This means that as a liquidity provider, you can earn more in a Uniswap pool whereas a SUSHI token holder will earn recurring cash flows resulting from trading fees collected by the Sushiswap protocol.
Development timelines
In terms of future developments, Uniswap is looking to become a holistic ecosystem offering several crypto services. Recently, Uniswap Lab, the company behind Uniswap, acquired NFT marketplace Genie to enable users to tap into the NFT market. Moreover, integrating Genie into the Uniswap marketplace will allow users to unlock universal ownership.
Uniswap Labs raised over $160 million in a recent funding round as the company aims to broaden its product lines. The series B funding round was led by Polychain Capital with extra backing from other investors, including Paradigm, Variant, SV Angel, and a16z crypto. According to Uniswap Labs the organization is currently valued at $1.66 billion after this latest funding round. Uniswap plans to use the funds towards expanding its product offerings and improving the user experience via mobile apps and developer tools.
