What is Uniswap’s position in the DeFi field?


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Editor’s note: This article is from the author: Juan Escallon, translation: Li Hanbo, Odaily Daily Planet was reprinted with permission.

Uniswap is the largest decentralized exchange for cryptocurrencies

Imagine Google. In its early days, you just used it for web searches to give you shares..

In other words, as long as you create an account on Facebook, you will be given shares…

In other words, Uber uses the company’s equity to reward you for riding in their car…

Well, this is Uniswap, the largest decentralized exchange in the cryptocurrency market, and the largest application of Ethereum.

The agreement currently has a market capitalization of US$3.5 billion, and the issuance of its new Token UNI surprised the crypto community. The agreement will issue a total of 1 billion Tokens. The special feature is the Token distribution mode. 60% of Token will be allocated to users, which far exceeds the allocation to investors or even the founding team. And 15% of the tokens are allocated to early users.


Distribution of UNI Token

How did this distribution event happen?

Each Ethereum address that interacts with the protocol at least once is assigned 400 UNIs, which is equivalent to $1,400 at the time of writing this article. Users who provide liquidity (ie “liquidity providers”) get more. Even users who try to use the protocol but fail (transaction failure) will be rewarded. These funds are distributed through a mechanism called “airdrop”, in which Tokens are automatically distributed among selected Ethereum addresses, and users do not need to pay any fees.

This unique distribution model is one of the most democratic and decentralized Token distribution events in the history of cryptocurrency. At the time of writing, more than 120 million UNI Tokens have been claimed by 196,000 addresses. In DeFi, it is common for users to have multiple addresses, so the actual number of users who claimed UNI Token is unknown, but it is still very impressive.

Why is this Token distribution a big event? The first reason is that it automatically distributes its ownership to its users. Most of the tokens of the agreement will be owned by its users, not by investors or the founding team. Actual users and early believers of the project become shareholders of the project. What a good way to guide a loyal community!

As we will see, there are some general similarities between encrypted token holders and the company’s traditional shareholders. However, there are important differences. The most important thing is that Token holders do not own shares in the company, but in a platform. Due to network effects, as the number of users increases, the value of the platform will increase exponentially. Uniswap’s value index growth over the past few months has confirmed this.


The above analogy with the telephone network is its network effect. The lines represent potential calls between phones. As the number of phones connected to the network increases, so does the number of potential calls available for each phone, and increases the utility of each phone (new and existing).

Second, this may be the most important wealth distribution event in the short history of DeFi. Agreement equity worth $525 million is automatically allocated to the community. And 60% of the total 3.5 billion USD project will be allocated to its users. All of this is happening in the era of the new crown and the buzz about universal basic income (UBI).

What is the use of UNI?

UNI Token is similar to the equity instruments of traditional companies in some respects. It gives its holders voting rights (political rights) and potential income shares (economic rights).

The main function of UNI Token is the management of agreements and finances. Token holders can vote on the development of the agreement, as well as on the future income distribution. If Token holders vote yes, they can accumulate part of the value generated by the platform.

What income does Uniswap have? It is mainly the transaction fees paid by traders when using the exchange (there is a 0.3% fee for exchanging tokens). The governance contract contains a “fee switch”, if activated, the holder can earn part of the agreement fee.

This brings considerable economic value to Token holders. Uniswap is the second protocol that generates the most fees in encryption technology, even more than Bitcoin!


What is Uniswap?

Uniswap is the largest DeFi protocol and the most important decentralized exchange. Its average transaction volume is $350 million per month. The way this decentralized exchange works is somewhat different from the traditional exchanges you may already know. Unlike traditional exchanges, in Uniswap, you do not have a counterparty on the other end of the transaction. Instead, there is an asset pool (that is, a liquidity pool) managed by smart contracts. Technically speaking, one person trades directly with the liquidity pool. Anyone can provide funds to these pools, which receive 0.3% of the fees paid by traders.


Uniswap is currently the top DeFi agreement with more than $2 billion locked in. Source: DeFiPulse DeFiPulse

Uniswap’s growth this year is exponential, just like other DeFi products. It has been very successful, and its trading volume has matched that of decentralized exchanges such as Coinbase. This agreement with only 10 employees is reaching the transaction volume of a company with 1,200 employees that is about to go public!


Uniswap liquidity Source: Dune Analytics

Uniswap is an important part of DeFi and one of the first agreements you will encounter in your DeFi journey. It allows trading of any type of crypto assets, and also allows to list any asset and automatically create a market for it. This is a very important function that will completely change the capital market. In traditional finance, the process of listing assets on the public stock market requires, for example, an IPO, which requires a lot of capital and time investment. Even the process of listing crypto assets on a centralized exchange like Coinbase has been an expensive and long process until recently.

Not anymore. Now, with Uniswap, anyone can list assets without permission. If sufficient liquidity is provided, a market can be automatically created for any kind of asset. Therefore, one of Uniswap’s most important functions is the automatic market maker (AMM). This is the evolution of market makers, and market makers play an important role in traditional finance.

In addition, Uniswap can be said to be the most decentralized and trusted neutral protocol in DeFi. For this reason, it has become an essential infrastructure in the DeFi ecosystem. According to the agreement theory proposed by Ryan Adams and David Hoffmann, in the long run, a neutral and decentralized agreement is more likely to gain the upper hand and gain more value.