Uniswap is a place where developers, liquidity providers and traders converge to participate in an open and accessible financial marketplace. It is a Decentralized Finance project that gives control of the assets in the hands of its users. There is no central order book to match buyers or sellers but Liquidity Pools where liquidity is provided by liquidity providers.
With over 128 million all-time trades and a trading volume of more than $1.3 trillion, Uniswap(V3) is the largest decentralized cryptocurrency exchange as per CoinMarketCap data.
What is Uniswap?
Uniswap is a Decentralized Finance(DeFi) protocol built on the Ethereum blockchain. It was developed by Hayden Adams based on the idea of an Automated Market Maker(AMM) and launched in 2018. This open-source project uses smart contracts to enable peer-to-peer trades and ERC-20 token swaps.
Uniswap’s native coin is called UNI and it is an ERC-20 token. UNI token holders can vote for changes to the Uniswap protocol. This essentially establishes community ownership over the Uniswap protocol.
How does Uniswap Work?
Uniswap is a decentralized protocol. This means that there is no central entity controlling the order books or holding the customers’ assets on their behalf. Instead, Uniswap uses a model known as Automated Market Maker(AMM). An AMM is a collection of smart contracts that spell out how liquidity is to be provided, how liquidity pools are to be created and how assets are to be swapped.
A liquidity pool is an aggregation of digital assets locked in a smart contract. Uniswap uses the formula X*Y=K to determine the price of the tokens in the pool. Here, X and Y are the two tokens in the pool.
The people who provide liquidity to a pool are known as liquidity providers(LPs). They are compensated for staking their assets either by being given crypto or a percentage of the transaction fee charged. On Uniswap, LPs get a portion of the fee charged for swapping tokens in proportion to their contribution.
How to Use Uniswap with Metamask
You can swap cryptocurrency on Uniswap by connecting your crypto wallet to it. Metamask is one such wallet that is available both as a browser extension and as a mobile app.
Step 1: If you don’t have a Metamask wallet, go to its website and download it. You will have to add the extension to your browser to proceed further.
Step 2: Now, click on Create Wallet and enter your password. Go through the Terms of Use and check off the tick box to agree with them.
Step 3:You will be shown your secret recovery phrase that you have to verify. Do not store the secret recovery phrase in the form of a picture on your phone or computer. It is better to just write it down and keep it someplace safe.
Step 4:Head over to the Uniswap website and click on Launch App in the top-right corner. You will be redirected to a new page where you have to click on Get Started.
Step 5: Next, click on the Connect to Wallet button. You will see a list of wallets from which you have to select Metamask. Then, enter your wallet credentials in Metamask.
Step 6: You will be able to see your wallet details if the connection is successful. Click on Next and give permission to connect to Uniswap by clicking on Continue.
Step 7: Now, you can just select the input and output tokens that are to be swapped as well as the input token amount. You will be able to see the transaction fee in the preview screen. Click on Confirm to complete the swap.
How to Use Uniswap with Trust Wallet
Trust Wallet is a mobile-friendly crypto wallet that is extremely popular among Uniswap users.
Step 1: Download the Trust Wallet app from the Google Play Store or iOS App Store and install it on your phone.
Step 2: Tap on Create a New Wallet and then go through the Terms of Usage once. If you agree with them, check off the tick box and tap on Continue.
Step 3: You can now see your recovery phrase. Jot down the phrases and store them in a safe place. Do not keep screenshots of your recovery phrases as it is not safe. After that, tap on Continue.
Step 4: Verify your recovery phrases and tap Continue when you are done. Your Trust Wallet has been set up. You can now deposit ERC-20 tokens in your wallet.
Step 5: You need to enable the DApp Explorer to connect with Uniswap. For this, tap on Settings on Trust Wallet’s main page.
Step 6: Tap on Preferences and then on DApp Browser. Enable the toggle button to set up Trust Wallet DApp Browser.
Step 7: Now, in the browser, search for the Uniswap protocol. Click on the protocol and you will be able to see the swap page.
Step 8: Select the input and the output token and the amount of input token that you want to swap. Review the transaction fee and click on Confirm to complete the swap.
How to Use Uniswap with Coinbase Wallet
While you might be familiar with Coinbase as a cryptocurrency exchange, it also has a self-custody wallet that you can use to swap tokens on Uniswap.
Step 1: Download the Coinbase Wallet mobile app or install the browser extension on your computer. Tap on Create New Wallet.
Step 2: Read the Privacy Policy and Terms of Service and give your consent if you agree with them. Then, enter a username and set your username privacy preference. After that, tap on Submit.
Step 3: You can choose between biometric authentication or passcode as a security method to protect your wallet if you are using the app.
Step 4: You will be shown your 12-word security recovery phrase. Securely back up your recovery phrase and then re-enter it to confirm the backup. Then tap on Continue.
Step 5: If you are on your computer, you will be asked to enter a strong password after your recovery phrase has been backed up. Fill in a unique and strong password, agree to the Terms of Service and click on Submit.
Step 6: Deposit some ERC-20 tokens in your Coinbase wallet. Tap on the Four-Square Icon at the bottom of the screen to access DApp Explorer and then tap on Discover DApps.
Step 7: Select Uniswap and tap on Visit Uniswap Exchange. Choose the input and output tokens you want to swap and enter the input token amount. Then tap on Swap, review the transaction fee and confirm the transaction.
Uniswap FAQs
Do You Need KYC for Uniswap?
No, you do not need to be KYC verified to use Uniswap. In fact, you don’t need to go through any lengthy signup process to register on it. All you need to do is connect your cryptocurrency wallet to trade on Uniswap.
How Much is Uniswap Fee?
Uniswap v3 has multiple pool fee tiers- 0.01%, 0.05%, 0.30% and 1%. Stable/stable pairs like USDT/USDC are on the lower end of the fee spectrum at 0.05%. Stable/blue chip pairs such as USDC/ETH attract a fee of 0.30%. Exotic pairs like ETH/DOGE have the highest fee of 1%.
Is Uniswap Safe?
Yes, Uniswap is a largely safe platform. The users are in control of their private keys and therefore, a hack of the Uniswap servers would not result in asset loss for them. Further, Uniswap Labs has a Bug Bounty program wherein anyone can report previously-unreported bugs in the smart contracts and get rewarded in return.
Conclusion
Uniswap is a pioneer in many ways. It is one of the original DeFi apps that gained popularity on Ethereum and is the largest decentralized cryptocurrency exchange by market cap. This is a platform that only ensures privacy while trading but also encourages community ownership and governance of the protocol.
Uniswap does not have a registration process and is free from KYC obligations. All you have to do is connect your crypto wallet with the protocol and you are good to go. You can use any wallet like Metamask or Trust Wallet to do so and follow the steps to complete a swap.