UniSwap 101: Trade and Provide Liquidity with Ease
The real world is not the only place where gas prices have become a sore point. Rising gas fees and transaction fees on popular crypto exchanges have been among the significant criticisms of trading in cryptocurrencies.
However, the news is not all bad! There has been a slew of increasingly creative solutions to the problem of gas fees on crypto exchanges. Enter UniSwap, an Ethereum-based solution whose goal is two-fold: helping users save on gas fees while also helping cryptocurrencies stay liquid.
What is UniSwap?
Uniswap was started in 2018 as a decentralised exchange (DeX) that allows users a lot of flexibility to ensure liquidity in their trades.
Generally, cryptocurrency markets can be seen as either liquid or narrow. A narrow market implies a rigid structure of buy and sell orders that must match perfectly for transactions to execute.
A liquid market, however, allows for a lot of agility in trading as there is no need for buy and sell orders to match up, owing to what is called a “liquidity pool”. This is maintained by users of the exchange who stake tokens to ensure the availability of funds for all transactions on it. In return, they are granted rewards in the form of a portion of transaction fees or governance rights on the exchange.
Essentially, UniSwap is an extension of the Proof of Stake Model that most blockchains follow, allowing users to stake tokens in exchange for rewards. The key distinction here is in the rewards that users can get.
Uniswap, being decentralised, allows users complete control over their funds and personal data, making it a non-custodial exchange. This means that the exchange does not own any personal information such as transaction data or personal logins.
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Originally published at https://bitscrunch.com on June 1, 2022.