CryptoTraders Pro Guide to Uniswap! If you’ve got questions, we’re here with the CryptoTraders Pro Guide to Uniswap – the hottest thing with Ethereum and ERC20 that’s causing skyrocketing demand.
First, a brief summary – what is Uniswap? Uniswap is an Ethereum based exchange that allows anyone to swap ERC20 tokens. Traditionally, one would have to have buyers and sellers to create liquidity, Uniswap eliminates this need and creates markets automatically. Essentially, Uniswap was designed to help solve decentralized exchanges’ liquidity problems.
Decentralized exchanges solve many issues that their centralized counterparts have, including the risk of hacking, mismanagement, and unnecessary fees. But that does not mean that decentralized exchanges do not have their own problems. The main problem that plagues decentralized exchanges is liquidity. Without liquidity, an exchange will not trade fast and will not be as efficient.
That’s where Uniswap comes in. By creating a solution to this problem, Uniswap is becoming one of the most popular decentralized exchanges on Ethereum. Uniswap is a protocol on Ethereum for swapping ERC20 tokens. Unlike more exchanges, which are designed to take fees, Uniswap is designed as a public good. Uniswap also uses a simple math equation and pools of tokens and ETH to eliminate the need for buyers and sellers and the matchmaking of the two to successfully swap tokens.
Using what’s called the “Constant Product Market Maker Model”, any token can be added to Uniswap by funding it with an equivalent value of ETH and the ERC20 Token being traded. Uniswap’s constant equation is X*Y=K. X and Y represent the quantity of ETH and the ERC20 tokens in question respectively, while K is a constant value. If a token is bought, the supply of the ERC20 token decreases while the supply of ETH increases – thereby increasing the price of the ERC20 token.
By this equation, the price of tokens on Uniswap can only change if trades occur.
What do you think? We will be publishing a step-by-step guide to using Uniswap later this week. Is there anything you would like us to address? Let us know on our Facebook page!