UNISWAP
July 2024
In a recent blockchain and crypto class, I had the opportunity to present on Uniswap, one of the most impactful decentralized exchanges (DEXs) in the cryptocurrency world. Uniswap operates on the Ethereum network, utilizing an Automated Market Maker (AMM) model that allows users to trade tokens through liquidity pools, rather than traditional buyer-seller matching.
Highlights of the Presentation:
Uniswap’s Decentralization and AMM Mechanism: Uniswap is a decentralized exchange where users can trade without relying on intermediaries. Instead of matching buyers and sellers, it employs liquidity pools, which are essentially crowdsourced collections of tokens that facilitate trading. Liquidity providers are incentivized to supply tokens to these pools, earning a share of the transaction fees in return.
The UNI Token: One of the most interesting parts of Uniswap’s history is that it launched its governance token, UNI, two years after the platform was operational. This timing is significant because, unlike many crypto projects that raise funds through initial coin offerings (ICOs), Uniswap initially raised funding through traditional rounds. This later token distribution helped reduce regulatory burdens and allowed for broader community participation.
Token Valuation: At the time of its launch, each UNI token was priced at $1, and its value has fluctuated significantly, reaching highs of $44. Presently, it’s valued around $7. The fixed supply of 1 billion UNI tokens creates scarcity, which influences its price. However, speculation and market behavior also play large roles, with price movements often driven by news, social media, and regulatory changes.
Liquidity Pools and LP Tokens: Uniswap also utilizes Liquidity Provider (LP) tokens, which users receive in exchange for providing liquidity to the pools. These LP tokens can be staked or used as collateral across various decentralized platforms, creating opportunities for liquidity mining and other DeFi activities. LP tokens are essentially a reflection of the user’s stake in the liquidity pool and can be highly versatile in decentralized finance strategies.
