Since the beginning of this year, Uniswap has massively taken over the decentralized exchange (DEX) market. According to Dune Analytics, the current market share of Uniswap surged to a mind-boggling 63% across the entire DEX landscape, regardless of the order-matching system used — order book based versus reserve based.
There are obviously a host of benefits and advantages contributing to overwhelming market domination. Uniswap boasts many selling points and in this piece, we are going to explore some of them, the ones which are most appealing to investors, traders, and projects.
Benefits and Advantages of Uniswap
Uniswap utilizes an automated market maker (AMM) protocol where you trade not with other traders but with a smart contract called a liquidity pool. It acts as your counterparty in a trade. In this case, your order is executed not against another trader’s order but the entire pool and its reserves. The liquidity to such a pool is added by investors, therefore the advantages that the service offers are at least twofold, depending on whether you are a simple trader or a liquidity provider (or both). And we haven’t yet considered projects.
AMM protocols are permissionless, which means there are no KYC processes — you don’t have to sign up and disclose your identity. There is no central authority to block users and seize their funds, and there are no hackers to steal your money from the exchange.
No registration and no KYC allows for a much quicker setup of your trading environment. Whether you want to become a trader or a liquidity provider on Uniswap, all you need is a supported Ethereum wallet like the ubiquitous Metamask and a wallet address. Connecting a wallet to Uniswap is a breeze. You just click “Launch App” on Uniswap, then “Connect to a wallet”, select Metamask while retaining the full custody of your funds.
Uniswap is also immensely useful to blockchain startup projects which want to release their tokens directly to the market and attract the attention of a wider audience. Listing a new coin or token on a centralized exchange, especially on a high-caliber one, can be a painful experience. And not guaranteed to succeed at all. With Uniswap, there are no listing fees and no bumpy vetting processes before a coin or token can be listed for trading. So its popularity is well deserved.
On the other hand, it is also a great way for the supporters of a startup project to finance it. Via adding liquidity to the market, they are getting their hands on the project’s token among the first. In some way, it works like a fundraising platform, with a nice bonus of having all the funds available to the project. Further, the huge price fluctuations that typically follow the launch of a token allow early investors to capitalize on new projects that offer real value.
From an investor’s perspective, Uniswap allows everyone to earn by providing liquidity to the market and then collecting trading commissions. As the service is completely decentralized, all trading fees are distributed among the liquidity providers proportionally to their share in the pool. Adding liquidity is as simple. You deposit tokens into a liquidity pool smart contract and receive pool tokens which you can liquidate at any moment. So it is also as safe as the DeFi paradigm aims it to be.
From a trader’s point of view, Uniswap is a godsend. It gives traders an opportunity to earn by exploiting price discrepancies between Uniswap’s price quotes and the rest of the market. In fact, the first version of Uniswap heavily relied on arbitrageurs for price discovery. The second iteration now uses a blockchain oracle to keep the price quotes in line with the market. Basically, it means you have to rely on more sophisticated trading strategies to take advantage of an arbitrage opportunity. But it is still there.
Because Uniswap is a truly decentralized place, anyone can list anything there. This is an indisputable advantage in and by itself.
We are also listed on Uniswap, please check it out:
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