Halfway through 2020, the expansive and diverse ecosystem of decentralized finance – or better known as DeFi – reached a pivotal milestone. For the first time in its brief history, over $1-billion worth of liquidity was locked in countless platforms stretched across the web. However less than a year later, we're now seeing DeFi catapult its total value of assets skyrocket to be worth more than $82-billion. That more than 8,000% increase in capital is what led us to this Uniswap review.
As currently one of the largest projects as far as how much value flows within it, Uniswap is among the earliest and most well-known of the now-gigantic DeFi platforms. It continues to be a very popular choice today, too, as billions worth of tokens are swapped and exchanged on its platform every single day. But with newer and younger decentralized exchanges – or DEXes – enter the fray, can Uniswap maintain its dominance? Well, read along our Uniswap review to learn more.
What is Uniswap?
Founded in 2018, Uniswap is among the old guard of the DeFi industry. Powered by the Ethereum blockchain, it's currently one of the most popular decentralized exchanges by liquidity, having recorded an accumulated all-time trading volume of more than $244-billion. Uniswap is, as we hinted before, a decentralized exchange (DEX). This is different compared to the centralized cryptocurrency exchanges that we often rely on, which use a peer-to-peer or order book model.
That is how trades happen: by matching buying and selling prices between its users to execute exchanges. Uniswap, on the other hand (and as with all other DEXes), adopts an automated market maker (AMM) model. By using an AMM, it essentially relies on three key factors – algorithms, liquidity pools, and liquidity providers. Instead of using order books to set a market price, AMMs use algorithms to assess supply, demand, market volatility, among other things, to set a fair value.
This is then reliant on the liquidity pools. Instead of buying or selling from another user, traders on AMMs will “buy” – or in the case of DEXes, ‘swap' – tokens from these liquidity pools, where users from across the DEX, such as Uniswap, will pools their tokens together. This pooling of assets is how liquidity is derived for trading to function. Meanwhile, the users that pool their tokens into liquidity pools become liquidity providers – or LPs – who can earn a portion of the trading fees.
How does Uniswap Work?
As a result of the AMM model of trading that we've now explained in our Uniswap review, there are a few key advantages. Firstly, using an algorithmically priced system avoids the problem of large spreads – in other words, the gaps between buy and sell prices – that mostly plague illiquid assets. Moreover, AMMs have the benefit of cutting costs, as there are no middlemen to deal with in regards to exchange fees, not to mention enhanced privacy as there are no KYC requirements.
Overall, AMMs provide each user with opportunities to monetize more compared to a centralized exchange. Users who need to swap assets can do so with generally lower costs and fees compared to a centralized exchange. On the flip side, users who have a large sum of idle assets can contribute to liquidity pools and earn a cut of the trading fees. While some DEXes have evolved their platform to offer extra services, our Uniswap review has found that Uniswap is maintaining a simple focus.
Swap, Pool, or Vote
Having launched the Uniswap dApp (decentralized application) and after connecting their wallet of choice, users will be greeted to just three primary functions. You can click on ‘Swap' to execute a swap between one token to another, such as from Ethereum's Ether to Uniswap's UNI. Clicking on ‘Pool' is where you can become a liquidity provider (LP) to add your tokens and token pairs to a liquidity pool of choice. ‘Vote' lets you take part in Uniswap's on-chain, decentralized governance.
Although rather simple, this does make Uniswap tremendously easy to use compared to its rivals such as SushiSwap. Users are not spoilt for choice here despite the simplicity, as there are more than 8,000 unique pools to trade from as of this Uniswap review and over $8.5-billion in liquidity to ensure the best prices that you'll find on any DEX. Fees are moderate compared to exchanges overall, including centralized like Binance or Coinbase, with a flat 0.3% fee for swapping tokens.
Aside from its popularity as a place for regular users or traders to swap between cryptocurrencies, Uniswap is a highly sought-after protocol thanks to its pools yielding extremely lucrative rewards for liquidity providers. For would-be LPs, some pools offer returns that are higher than their rivals. While writing this Uniswap review, we've found one KISHU-ETH pool returning more than 2,200% in yearly (APY) earnings for LPs, while an AKITA-ETH pool is offering its LPs gains of over 1,400%.
What are Uniswap's UNI Cryptocurrency Tokens?
The native cryptocurrency of the Uniswap protocol is UNI tokens. Since Uniswap is built on Ethereum, UNI is programmed as ERC-20 tokens. Although they are quite commonly found on the Uniswap protocol and other exchanges as a trading pair, UNI tokens are originally designed for governance. UNI token holders are able to put forward proposals and vote on changes that could affect the entire protocol but Uniswap's native crypto is also an excellent store of value.
With a market capitalization valued at $19,419,061,389, Uniswap is currently the 13th-most valuable cryptocurrency on the market, with a price of $37.10 for a UNI as of this Uniswap review. This marks a massive 8,700% return on investment if you had bought and held UNI tokens from September 2020. As Uniswap gains greater publicity within the mainstream audience and continually growing adoption, its UNI tokens could capture a lot of momentum for greater gains.
What are Uniswap's Future Roadmap Updates?
This Uniswap review came not long after Uniswap had undergone a massive change in its network. As it is released and updated generationally to optimize functionality and add features to the platform, Uniswap was launched in its V1 stage in 2018, followed by Uniswap V2 in May 2020. In May 2021, Uniswap V3 had its main-net launch. Despite a strong inflow of liquidity and migration of users, the more stable V2 network retains much of Uniswap's volumes.
Currently, Uniswap V3 is being built on the Ethereum main-net, but a scalable layer 2 (L2) deployment is being planned to launch on Optimism soon. Otherwise, Uniswap V3 sees the introduction to a lot of new features. For a start, there are now multiple fee tiers, where LPs can be compensated more fairly depending on their risk appetite – 0.05%, 0.3%, or 1.0%. The biggest update would no doubt be Concentrated Liquidity to allow for granular control of pricing.
Essentially, LPs can choose which price ranges they can allocate assets to, thus enabling them to earn higher returns with a claimed 4,000x gains in capital efficiency compared to Uniswap V2. There are a number of other new tools designed for LPs to better manage their assets, too. As for regular users that want to swap tokens, Uniswap V3 will be cheaper to use owing to efficiencies that have led to lower gas fees, more competitive prices, and faster execution time for trades.
What else is Uniswap Working on?
Our Uniswap review won't just end with the main DEX, as Uniswap is also working on several other projects alongside it, some more fascinating than the others. One example is Unisocks, where you can buy $SOCKS tokens that could entitle you to win one real pair of limited edition socks that follows a dynamic pricing curve. Sybil is a Uniswap-built, decentralized, on-chain governance tool for Ethereum-powered DeFi protocols, which includes other platforms like Aave or Compound.
Uniswap then created Unipig, which is an experimental demo to see how Uniswap would perform once it moves to the scalable Optimism layer 2 solutions built atop Ethereum, which should be able to process more than 200 transactions per second. One other initiative empowered by Uniswap is Token Lists, which is a community-led project designed to improve the discoverability amidst the huge array of ERC-20 tokens, and thus allow users to better discern reputable projects from scams.
Uniswap Review – Conclusion
In rounding off our Uniswap review, we've come to realize how integral Uniswap has embedded itself into the burgeoning DeFi space. Whenever one thinks of having to swap out from one token to another, Uniswap is the most obvious choice. If you're ever thinking of making money through DeFi, Uniswap has proven to be a reliable go-to for liquidity providers. This is even if it doesn't give as many options to make money, such as native staking, asset management, or yield aggregating.
They've also set themselves up to be the prime location for other promising and new DeFi projects to list their tokens on Uniswap and thus farm for liquidity on Uniswap to build up their dreams. In short, Uniswap has become more than just an exchange. Entire platforms are now intertwined with them for their future success. Although they'll come under heated competition, our Uniswap review does show that they're still going to be one of the top DEXes going forward.
Ease of Use
Long Term Sustainability
- A lot of liquidity pools to choose from for swapping tokens, as well as plenty of liquidity to ensure the best prices.
- Platform-wide optimizations ensure smooth and seamless swapping, as well as quick trade execution times.
- High yields and earning potentials for liquidity providers to pool tokens into liquidity pools.
- Uniswap V3 promises a lot of improvements and upgrades, like Concentrated Liquidity, flexible fee tiers, etc.
- Promises of layer 2 scaling with Optimism should enable users to swap tokens with lower gas fees and reduced transaction times.
- Doesn't offer as many services as other DEXes, like yield farming, native staking, lending, asset management, etc.