Crypto Currencies

What is Uniswap and how does it work? Reviews 2022 Is it legit?

Want to know what Uniswap is and what it is for?

I will try to explain it to you in clear and simple Spanish because if you go to very technical sites you will find explanations that will seem Chinese to you.

My intention here is to give you the simplest explanation of what it is.

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We are entering a new financial world and the terminology is not well known but little by little we will assume it. Uniswap is one of those projects – for the moment – ​​that is succeeding in this new paradigm of the digital economy, and for this reason it is full of “strange” concepts.

What is Uniswap?

Uniswap is a decentralized cryptocurrency and token exchange, or what is called DEX.

But, it is also a token(UNI) in itself, and therefore it is listed on the cryptocurrency markets as such.

Its system is based on Ethereum technology and it is used to trade ERC20 tokens.

Now you might be wondering “what is an ERC20 token”. These are smart contracts designed to run on the Ethereum blockchain. That should suffice for now.

Well, since this sounds a bit ethereal, the important thing is that we know that Uniswap is like a house of cryptocurrency but has no intermediaries, as is the case with centralized exchanges such as Coinbase.

Therefore, the goal of Uniswap is to: enable the exchange of cryptocurrencies and tokens between users without having to resort to intermediaries.

Being decentralized means that transactions are carried out directly between users, as if we were in a market and buying the product directly from the original producer or owner.

In this way, we do not have to go through a site where there are intermediaries who, logically, charge a commission.

Apart from eliminating the extra cost of intermediaries, Uniswap is also supposed to provide better security features, since DEXs are supposed to be more secure than CEX (centralized exchanges).

Finally, it offers a total elimination of bureaucracy by not needing to verify accounts and identity identification issues like CEX does.

But the advantages of security and transaction cost have a counterpart in this type of exchange: liquidity.

This is where Uniswap comes in.

This exchange has created a process by which transactions have been greatly simplified, thereby attracting a large amount of supply and demand, thereby creating confidence among participants.

Other exchanges of the same type were not so lucky or as insightful and either fell through or simply couldn't compete with Uniswap.

How was Uniswap born?

what is uniswapAll of this stems from Vitalik Buterin's 2017 Reddit posts in which the legendary crypto developer laid the groundwork for building decentralized exchanges using Ethereum technology .

Later the developer Hayden Adams took up the gauntlet and started the Uniswap project based on the idea of ​​creating an ideal system for decentralized market makers (liquidity providers).

He put the idea into practice and everything was a success, because in a few years Uniswap became one of the most successful DeFi projects in the world.

Will he be able to maintain this success in the future with all the competition that appears?

Uniswap Security

The security of the platform basically depends on what you have with the custody of your passwords and your data.

In theory, it is an open source project that has been revised several times to improve its functionality.

A significant issue with Uniswap is that it does not perform custodial functions like an exchange like Binance, for example, since the coins are always in your own wallet. This way, there is no risk of hackers taking control of your Exchange account. These hackers should take control of your own wallet address.

Does that mean Uniswap is 100% secure?

Absolutely.

Remember that we are in a very innovative and new market, so things change quickly and we don't really know what we can find.

In theory, the security is very high, because if we keep our passwords in a safe place, a hacker could never take control of our funds. So now you know, put your passwords on paper so no one can take your crypto (but don't lose the paper).

How to avoid Uniswap scams?

Yes, in Uniswap there is also scammers activity, so you have to be careful not to fall into their trap.

Scammers cannot cheat using their usual centralized exchange methods, but they can use other tactics more typical of sites like Paxful and other P2P models.

We have to be careful with things like:

  • Fake tokens that can be created before the originals, thereby tricking those who fall into the trap
  • Social engineering tactics, using false signals and influence activities to lure the community into trading “cheating” tokens
  • Report false returns; todo a clásico del mundo de la inversion that consists of promoting tokens with large ganancias that his falsas, creando así a gran interés inversor, pero que en realidad se trata de meter el dinero en cosas que no valen nada, y así los scammers se llevan money

To avoid this type of problem, it is important to investigate well what you want to do and where you want to invest, especially if we are in very exotic and little known assets.

More information about these security issues at this link.

How does Uniwap work?

MetaMask makes it possible to carry out operations with tokens or smart contracts using an automatic market maker (AMM) type protocol. This way you can:

  • Exchange tokens
  • List new tokens
  • Add tokens (provide liquidity) to pools to earn commissions (just like interest)

If you want to operate on this platform, the first thing you need to do is connect your Ethereums and this is done through a wallet where we have the Ethers. We can choose between wallets like MetaMask, Coinbase Wallet, Fortmatic or Portis.

In this case, I choose to connect with MetaMask, one of the most popular wallets for connecting with DeFi.

how to connect a wallet in uniswap

I will give you an example so that you can see that buying tokens with this DAPP is simple, but you have to study what you are doing before proceeding with these operations.

Example of buying tokens with Uniswap

In this case, I will buy DAI, which is a stablecoin that looks like the dollar.

invest with uniswap

In this case, I decide to buy DAI worth 0,02 ETH, which today would be around 40 USD.

I am informed that the liquidity provider commission is 0,00006 ETH.

It looks cheap.

Here you must see that this is not a commission-free system. That is to say that there are no intermediaries (brokers) does not mean that there are no commissions. The liquidity provider (the market maker) asks you for a commission.

Well, when we give it to run, we get the confirmation of the order, but it still gives us the option to accept or decline it.

gasoline costs for uniswap

In this new confirmation order, they tell us the gas cost(gas charge).

As you can see in the image, it is 0,0166 ETH or $33,91.

What does it mean?

That we have to pay a gas fee for the use of the platform, which in this operation represents more than 80% of the initial purchase price, therefore:

Buy in ETH Gas Commission at ETH Final payment ETH
0,02 0,016613 0,036613

Of course, in this case, I decided not to do the operation because the cost of gas is exaggerated for such a small amount.

If instead of 0,02 ETH you had bought 0,10, the cost of gas would be the same in this case, but this is something you will have to find out for yourself every time you go to exchange tokens, because Terms may vary depending on in-market factors.

However, the operation, as we have seen, is not complicated at all.

Therefore, I do not recommend that you use Uniswap for very small operations and that each time you do so, you take into account the possible gas charges to be paid.

Add liquidity to Uniswap

On the other hand, instead of exchanging, we can use Uniswap to add liquidity and thus be able to have the right to charge this 0,3% in transactions on the pair we are working with.

In order to add liquidity, you need to enter two pairs and their respective amounts, so that the system can offer that amount to the market.

In the box to create our cash pair, we have access to the trade options.

how does uniswap work

In this case we have variables like:

  • The maximum allowable slippage, i.e. the maximum price slippage we are willing to tolerate
  • Time when the operation will be effective

Realize one thing: if the slippage is more than the commission you earn, the trade doesn't make sense to you.

What are Uniswap commissions?

The main fee for this exchange is 0,3% to trade the tokens, which goes to liquidity providers based on their reserve stake. In other words, when this commission is paid for the exchange of certain contracts, the amount goes to the pool and increases its value, so that those who have funds invested in these liquidity pools can withdraw more money.

In the future, a protocol fee could be introduced, which would be 0,05%. That's good to know, but don't worry just yet.

And finally, there are the gas commissions which, as we saw in the example, can be very important. That's why you have to consider the costs that are going to be paid according to the contracts, and as I mentioned, for now, it's not worth doing small value exchanges. As we can see, the use of Ethereum technology also comes at a price. I hope these costs will decrease in the future.

Uniswap Review – Rating

Great, I wanted to buy a token that was worth $90 but the gas charge was over $100.

A fully decentralized and easy to use platform. I love

Some of the transactions failed and I still had to pay part of the gas fee

Transactions over $50 to trade $150 worth of Ethereum is too much. Only worth it for larger quantities

Most of the complaints with Uniswap are due to the issue of gas charges and transaction failures, as well as the fact that customer service seems unresponsive.

However, it is difficult to draw definitive conclusions so early on, as we are still in the “Wild West” phase of the sector and there are many things to improve.

I think the main thing would be to improve gas commission fees for small trades, which I don't recommend at all for buying liquid assets, which can be traded much better on more traditional platforms.

On the positive side, I think it's a platform that can be successful if we use it well as a liquidity provider, but even so, we have to be very careful about what we do every day because a bad operation, a bad slip, can remove our advantages over several days.

Here the ideal would be to earn 0,1 or 0,2% of our capital on a daily basis, but this also implies being vigilant and carrying out operations intelligently. There are people who are able to automate this and therefore make more profit, but as I said, you have to be careful.

Uniswap Advantages and Disadvantages

✔️Better if large sums are going to be negotiated, to save on gasoline

✔️Interesting opportunities to act as a liquidity provider (market maker)

✔️Lots of tokens and cash to choose from

✔️It is one of the main DEX in the early years of the market

✔️There is more security and it is almost impossible for us to be hacked by password theft

✔️It is a system that protects privacy and bureaucratic records are not necessary

❌Gas charges are high for small transactions. you have to look at what you are paying for before you do it

❌We must be careful with possible scams and fake tokens that make us believe they are good

❌It is not yet a regulated system and therefore there is not much certainty from a legal point of view

❌Customer service is hard to reach

For more information, visit the website.

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