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It seems like new cryptocurrencies are emerging every day. And new exchanges, where users can trade the coins, are popping up almost as fast. Many of these exchanges are centralized, like Binance and Coinbase.
DeFi, or decentralized finance, is a trend that includes decentralized exchanges (DEX). These exchanges don’t rely on a central body or middleman. Instead, they run on smart contracts on blockchains such as Ethereum.
Whether you’re an experienced trader or want to dip your toes into the world of crypto, Uniswap is one DEX you should know. Here, we’ll cover what Uniswap is, how to buy UNI, and much more.
In A Nutshell
- Crypto Name: Uniswap
- Ticker Symbol: UNI
- Asset Type: Token
- Max Supply: 1,000,000,000
What Is Uniswap?
Uniswap is a decentralized cryptocurrency exchange or protocol. The platform allows users to trade cryptocurrency without relying on a middleman like a brokerage or a bank. Decentralization also means that there isn’t a single point of failure for hackers to target.
Uniswap also refers to the company that founded the protocol. Its token is called UNI. One of its main purposes is to give users a way to swap ERC-20 for Ethereum or other tokens.
The exchange uses the existing technology that supports the Ethereum network.
Uniswap.org first launched in November 2018. Its inventor, Hayden Adams, also co-founded Ethereum with Vitalik Buterin.
In September 2020, Uniswap announced that it was launching its cryptocurrency, UNI. During the launch, everyone who had ever used Uniswap received 400 UNI tokens. There are a total of 1 billion units of UNI in existence.
Uniswap experienced a surge in popularity in 2021 due to a new focus on DeFi. Version 3 of the protocol launched in May of this year. Its features include flexible swap fees, higher liquidity, and improved price queries.
How Uniswap Works
As described above, Uniswap is a decentralized protocol that lets users trade coins on the Ethereum blockchain.
The Uniswap protocol uses liquidity pools that are defined by smart contracts. This is an automated process that helps ensure liquidity. To determine which trades can happen, each pool uses the function x*y = k. The values x and y represent two different tokens (for example, Dai and Ethereum), and k is a standard value that doesn’t change. This formula means that when the value of one coin rises, the other goes down.
Liquidity mining is another feature of Uniswap. This method requires users to hold tokens, including UNI, in the decentralized exchange. This contributes to the platform’s liquidity. In exchange, users earn a commission.
Because Uniswap uses the Ethereum blockchain, the actual minting of tokens uses the PoW (Proof-of-Work) process. In December of 2020, Ethereum began migrating to a more energy-efficient and scalable PoS (Proof-of-Stake) mechanism. However, the switch will take a couple of years.
Uniswap’s token or cryptocurrency is called UNI. UNI is a governance token, which means that its community of users can vote on the token’s direction and future. There are 1 billion units of UNI, which are becoming accessible over four years from their genesis in September 2020. After four years, an inflation rate of 2% per year will kick in.
How to Buy Uniswap (UNI)
If you already have ERC-20 tokens, you can swap them for UNI using the Uniswap app.
If not, you can buy and sell UNI using a centralized exchange. These exchanges, or brokers, allow you to access their trading platform to buy and sell cryptocurrency.
Let’s take a look at how to buy UNI using a centralized exchange.
Step 1: Open an Account Online
To begin, go to your chosen platform’s site and enter your name and email address. You’ll be asked to enter a secure password. Verify your email address by clicking a link in your email after signup.
Most sites require two-step verification, so you’ll need to enter your phone number. Usually, the site will confirm your number by sending you a code via text.
You’ll need to provide proof of your identity by uploading a picture of your government-issued ID. You can use a driver’s license, passport, or another ID with a photo. Note that you need to be 18 to register for most sites and your ID is proof of your age.
Finally, you may need to answer some questions about yourself, such as what your occupation is and what the source of your funds are. Some exchanges require you to enter the last four digits of your social security number.
|Fees||0.5% spread fee and a flat / variable fee||Up to 1.49% of order value||0.00% to 0.26%|
|Crypto supported||50+ (including AND, BAT, BCH, BNT, BSV, BTC, CGLD, COMP, CVC, DAI, DASH, DOGE)||40+ (including BTC, ETH, LTC, BCH, ZEC, GUSD, LINK, OXT, DAI, BAT, AMP, COMP, PAXG, ZRX, BAL, CRV, MANA)||50+ (including ZRX, AAVE, GHST, ALGO, ANKR, ANT, REP, REPV2, BAL, BNT, BAT, BTC, BCH, ADA, LINK)|
|Promotions||Get $5 in free Bitcoin||$10 worth of Bitcoin (*after buying or selling $100)||None|
|Highlight||Large number of supported cryptocurrencies||Earn crypto interest on balances||Margin and futures trading available|
|Best For||Crypto investors||Earning interest on crypto||Crypto traders|
Step 2: Fund Your Account
After you create your account, you can deposit funds into it. There are a few different ways to fund your account, such as a credit card or bank transfer. If you already have cryptocurrency, you can use it.
Each broker offers specific instructions for funding, so if you get stuck, look for the site’s FAQ or guide.
Step 3: Make Your Purchase
Now, you can purchase UNI or another cryptocurrency. Begin by selecting the item you want to buy. Uniswap’s 3-letter ticker symbol is UNI, so it should be easy to spot. Select the amount you want to buy.
At this point, some brokers require you to choose a type of order:
- Market Order: You choose the quantity you want to buy at the current price. Your broker executes the order immediately.
- Limit Order: You choose the price you want to pay. When the market reaches your limit price, the broker will execute your order.
Step 4: Consider a Wallet
Congratulations, you’ve purchased your UNI! Now, you should think about security.
Because you’re using a centralized exchange for this method, there’s more risk than there would be with a decentralized exchange. If your broker is storing your coins and they experience a hack, you could lose money.
To protect yourself, consider storing your coins in a private wallet. Any wallet that supports Ethereum will work for storing UNI. Options include mobile, desktop, software, hardware, and hot or cold wallets.
A hot wallet connects to the internet and a cold wallet doesn’t. Cold wallets are more secure but hot wallets make it easier to buy and sell coins.
Hardware wallets typically look like a flash drive that you plug into your computer. Some of them are never connected to the internet, so they’re a type of cold wallet. They work best for users who are concerned about security and who don’t make trades very often. Some of the most popular hardware wallet models include Ledger, Trezor, and KeepKey.
Software hot wallets are still secure, but if someone gains access to your computer, they could access the software. If you trade often and value convenience, this type of wallet might be the best choice. Options include MetaMask and Exodus. There’s also Ledger Live, which connects to the Ledger hardware wallets.
If you own a high volume of cryptocurrency, consider keeping a small portion of your holdings in a hot wallet. Keep the rest in a cold wallet until you need it.
|Model||Ledger Nano X||Trezor Model T||ShapeShift KeepKey|
|Supported Coins||BTC, ETH, LTC, BNB, ADA, LINK, DOT, DOGE, UNI – See full list||BTC, ETH, LTC, BNB, ADA, LINK, DOT, DOGE, UNI – See full list||BTC, ETH, LTC, BNB, XRP, LINK, DOGE, UNI – See full list|
|Best For||Solid security features||Supports over 1600 coins||Budget friendly|
What Is Unique About Uniswap?
Unlike some exchanges, Uniswap is entirely open source. This means that anyone can use its code to create other decentralized exchanges. SushiSwap and PancakeSwap are both based on Uniswap’s source code.
Uniswap is designed to help with the liquidity issues that some exchanges have encountered. It does this by using liquidity pools rather than traditional order books.
A liquidity pool is simply a collection of cryptocurrency funds that are in a smart contract. You don’t need matching buy and sell orders to trade within the pool, as you would with order books. Instead, there are two types of coins in the pool. As the value of one goes up, the other goes down, and vice versa. This process happens automatically through the Automated Market Maker (AMM) system.
This system makes it easier for people to complete trades, which means there is more liquidity.
Here are some notable advantages of Uniswap and UNI:
- UNI is available on top exchanges, including Kraken, Gemini, Coinbase, and eToro.
- Decentralization means you can trade without an intermediary if you prefer.
- Version 3 has features like flexible swap fees.
- UNI is a governance token, meaning users have a say in its future.
- Open-source protocol means code is openly available.
As with any exchange and cryptocurrency, there are some disadvantages. Here are a few you should be aware of:
- Stiff competition from other exchanges, including SushiSwap
- The Uniswap protocol is limited to ERC-20 tokens.
- Uses the Ethereum blockchain, which is relatively slow and not energy efficient.
Whether you buy UNI on a centralized exchange or trade ERC-20 tokens on the Uniswap app, we hope our article has been helpful. Uniswap represents all the reasons people are turning to DeFi; it features as security, privacy, and a sense of ownership. It also tackles some common DeFi issues, including a lack of liquidity.
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Amy Besen is a freelance finance writer who covers topics including the gig economy, small business funding, and FinTech. Before starting her writing business in 2019, Amy worked in financial services for 12 years. She believes in helping people access the tools and knowledge they need to make better decisions about money.