Decentralized Finance (DeFi) is here to stay, and experts believe that major players like Uniswap may even replace centralized exchanges and central banks.
Uniswap is a cryptocurrency decentralized exchange that allows anyone to trade tokens without the use of a middleman. To understand what makes Uniswap different, let’s start by looking at the two types of exchanges in the cryptocurrency sector.
Decentralised Exchange (DEX)
A decentralised exchange (DEX) is a platform where you can trade or swap coins without the intermediary of any company or middleman. This kind of exchange is based on peer-to-peer transactions and has much higher liquidity. Besides, it comes with cheaper transaction fees.
The best aspect about decentralized exchanges is that they are non-custodial. So you have complete control of your funds and private key. They are also anonymous, as they do not require you to submit any personal information like tax or ID numbers before you begin trading.
Traditional or Centralised Exchange (CEX)
A centralised exchange (CEX) is the most commonly used across the cryptocurrency field. This kind of exchange usually uses a mediator or a third-party platform to realize transactions. Such exchanges come with customer support and super beginner-friendly features. Many platforms offer fast and secure transactions like Binance and Kraken which are all vetted and have strict KYC policies.
If you do decide to use a CEX but don’t feel confident you can do it yourself, you can connect with a broker who can trade on your behalf. A great platform that connects brokers and traders is Bitcoin Profit.
So now, when we know about the two types of exchanges in the crypto sphere, let’s explain more about Uniswap. Uniswap is a decentralized exchange and one of the most significant projects on the Ethereum blockchain. Almost anyone can access this exchange on a permissionless basis. Uniswap offers over 1,500 tokens, which is way more than what you can find on giant platforms like Binance or Coinbase.
Their trading fees are relatively reasonable, about 0.3%, which mostly goes to liquidity providers. It has a large trading volume. In fact, Uniswap holds 35% of the overall DEX market share. Another good thing about Uniswap is that it’s always fully transparent. A real unicorn project!
Risks of Trading
While Uniswap is an outstanding project, as stated on their website, there are risks involved:
“Uniswap is a decentralized peer-to-peer protocol that people can use to create liquidity and trade ERC-20 tokens. There are three versions of the Uniswap protocol (v1, v2, and v3), each of which is made up of free, public, open-source, or source-available software, including a set of smart contracts that are deployed on the Ethereum Blockchain. Your use of the Uniswap protocol involves various risks, including, but not limited to, losses while digital assets are being supplied to the Uniswap protocol and losses due to the fluctuation of prices of tokens in a trading pair or liquidity pool.
Before using the Uniswap protocol, you should review the relevant documentation to make sure you understand how the Uniswap protocol works. Additionally, just as you can access email protocols such as SMTP through multiple email clients, you can access the Uniswap protocol through dozens of web or mobile interfaces. You are responsible for doing your own diligence on those interfaces to understand the fees and risks they present.”
That’s true! While highly lucrative, trading cryptocurrency remains a risky venture due to the volatility of the market. Always do your own research before getting started.