What is Uniswap (UNI)?

Uniswap (UNI) is a decentralized crypto network that runs off the Ethereum blockchain. This blockchain addresses an issue that many order-based cryptocurrency exchanges face-it addresses the issue of liquidity. Liquidity refers to the number of buy-and-sell orders on a given order book.

Crypto exchanges are platforms where investors come to buy or trade their digital coins. However, this order-based trading method requires an individual to request a cryptocurrency while someone else fulfills it. Here, buy-and-sell orders get placed side-by-side and can only be successful when they both match.

For example, an individual can visit a crypto exchange to buy 50 AVAX tokens with US dollars. Unless someone else owns 50 AVAX or more than that, the transaction won’t get completed. As such, the main issue with this form of trading has always been its low liquidity.

Uniswap (UNI) requires interested traders to create liquidity pools with their collateral. Individuals on the network then use the liquidity pools to buy and sell instead of matching their orders. This blockchain is also open source, allowing anyone to copy its code and create their own code if they wish to.

UNI is the native token of this platform, allowing users to vote on new changes to the platform. These changes range from changes to the transaction fees to the format in which minted tokens will be distributed.

Who Created Uniswap (UNI)?

Hayden Adams created Uniswap (UNI) in 2018, and he built it on the Ethereum blockchain. Hayden is a former mechanical engineer at Siemens, and the idea for this blockchain came when he got laid off. While in a funk, he contacted his friend (Karl Floersch) to inform him about his dismissal from work.

However, Karl saw it as a blessing and convinced him that cryptocurrency is the future field. He helped him ease up to smart contracts and the Ethereum blockchain.

How Does Uniswap (UNI) Work?

The Ethereum blockchain hosts the Uniswap (UNI) network, making it compatible with ERC-20 tokens and most Ethereum tokens. However, it does this using its Automated Market Marker Protocol (AMM) rather than the usual spot market order book. An AMM protocol uses a mathematical formula to set the prices of cryptocurrencies.

Hence, this blockchain requires two entities to work:

• The liquidity providers
• The liquidity pool

Liquidity Providers

These individuals loan their cryptocurrency for it to be pooled into an AMM while earning incentives in return. Hence, when these liquidity providers offer up their cryptocurrencies, they receive Liquidity Provider Tokens (LPT). These tokens are like coupons used to redeem their rewards and funds.

Liquidity Pool

A liquidity pool is a pool of digital coins (like Bitcoin, Solana, Ethereum, and Litecoin). This pool allows people to trade their cryptocurrency for its equivalent without needing a second party.

While Uniswap (UNI) requires a liquidity pool and providers, it still functions as a smart-contract-based blockchain. As such, investors use smart contracts to trade various digital assets.

Since the Ethereum blockchain hosts Uniswap, it still uses its proof-of-work algorithm. This requires massive computing power and makes using the platform an energy-intensive process.

Is Uniswap (UNI) a Good Investment?

Uniswap (UNI) has been growing since its inception in 2018, with more than 90 million trades executed on the platform. It also recently hit a milestone where trades worth more than $70 billion get conducted monthly.

This means there’s hope that this digital currency might be a worthy investment. Of course, like all digital currencies, it comes with risks; however, ensure to seek financial advice before investing.