Uniswap is a Decentralized application that runs on the Ethereum blockchain and allows for decentralized form of token swap where the user is in full control. It works with the help of a lot of programs embedded in it’s smart contracts.
Users can exchange tokens built on the Ethereum blockchain on Uniswap without having to trust anyone with their funds.
Interestingly, its also possible to make some passive income on uniswap by lending your crypto assests to something the call liquidity pools.
Any one who lends their assests in any of these liquidity pools earns a cut of the trading fees made from users.
This is really cool because Uniswap is currently the most used decentralized token exchange platform with the highest number of traders!
The cool thing about Uniswap is it isn’t just a Decentralized exchange, it is precisely an automated liquidity protocol, it doesn’t need an order book to fill out orders, the user’s orders are filled automatically through a set of codes and technology called an Automated Market Maker (AMM).
Automated market makers are smart contracts that store up liquidity or crypto assets that traders can trade against. These assests are funded by liquidity providers. Anyone can be a liquidity provider who deposits an equivalent value of two tokens in a particular liquidity pool. In return, traders pay a fee to Uniswap when swapping that is then distributed to liquidity providers according to their share of the pool.
Before we proceed, you got to know that the Uniswap protocol was created by Hayden Adams in 2018. But the underlying technology that inspired its implementation was first described by Ethereum co-founder, Vitalik Buterin.
How to use Uniswap
- Go to the Uniswap interface.
- Connect your wallet. You can use MetaMask, Trust Wallet, or any other supported Ethereum wallet.
- Select the token you’d like to exchange from the dropdown.
- Select the token you’d like to exchange to also from the dropdown.
- Click on Swap.
- Preview the transaction in the pop-up window.
- Confirm the transaction request in your wallet.
- Wait for the transaction to be confirmed on the Ethereum blockchain. You can monitor its status on https://etherscan.io/.