UniSwap Platform (CRYPTO: UNI) was launched in 2018, it is a decentralized (not owned / operated by an entity) trading platform for Automated Market Makers (AMM) – It helps anyone to pool assets in shared market making strategies – Market makers sell their own stock to complete orders and this increases liquidity.
How UniSwap V1 and v2 works
Uniswap version v1 works on Ethereum (CRYPTO: ETH) blockchain which was primarily designed for converting tokens into a faster and more efficient exchange. UniSwap has created a series of ETH-ERC20 swaps, so essentially swap contracts for each ERC20 token. Traders can trade between the two (ETH-ERC20) in either direction.
UniSwap launched the second V2 protocol in May 2020 with new features that have shown significant growth in the world of crypto exchanges.
Besides the technical advancements, the main difference between the two versions is that in Uniswap V1 you can only trade between ETH and a single ERC20 token, however, V2 allows you to bundle any ERC20 token directly with any what other ERC20 token. UniSwap V3 and its features
In March 2021, Uniswap successfully launched its latest protocol version which includes more features such as concentrated liquidity, flexible fee rates, and easier and cheaper integrations with the Oracle system. The new interface will alert you when a better exchange rate is available.
Concentrated liquidity is a concept of aggregating prices into a single pool forming a combined curve for the LPs to be traded. This allows users to control the price brackets, which helps them to provide a significant amount of cash at the desired prices.
Flexible Fees: In UniSwap V3, a flexible fee model is introduced, allowing LPs to be properly compensated for taking varying degrees of risk. Currency exchange fees have changed and are no longer set at 0.30%. Uni’s governance said the default fee level worked well for most tokens. However, this new version introduces several pools for token pairs. The costs initially covered are 0.05%, 0.30% and 1%. However, UNI governance could add additional fee levels.
Oracle Improved Price: There are important updates regarding Time Weighted Average Prices (TWAP). First, this new version simplifies the process and Oracle users will not need to follow previous accumulator values. Second, this version tracks the sum of newspaper prices and third, it adds a liquidity indicator that can be used for contracts that wish to implement liquidity mining.
Benefits. UNI V3:
- It is a decentralized exchange platform – You have full custody of your funds as no intermediary / entity is involved.
- All tokens can acquire liquidity.
- Low-cost and flexible transactions compared to other exchanges.
- Liquidity providers can benefit from consolidating their liquidity by “limiting” it within an arbitrary price range.
- An innovative new exchange model that runs on the Ethereum blockchain, the second largest cryptocurrency by market cap.
The inconvenients. Uni V3
- New to the crypto market.
- More than 50% of tokens belong to the UNI community.
- It always relies on arbitrage to eliminate market imbalances. However, any natural market sees arbitrage trading occurring to quickly eliminate imbalances.
- Can add any coin to UNiswaps, increasing scammers and fake coins on the exchange. The high volume of transactions is an expensive activity.
Decentralized Finance (Defi) is a rapidly growing sector in the crypto world as it allows users to have full control over their assets as there is no intervention from any other third party institute like banks. And UniSwap is the largest decentralized exchange platform that allows users to exchange and pool their token quickly and efficiently.