How To Trade Cryptocurrencies On Uniswap
Decentralized Finance models have become the rave of the moment, and the growth that Decentralized Exchanges (DEXs) have attained in 2020, is way ahead of the situation a few years back. Uniswap is one DEXs platform that has continued to garner strength this year in the DeFi world.
With the introduction of trustless and automated protocol, a liquidity market dominance of over 23% and TLV of $2.6 billion at the time of writing, Uniswap continues to be the best performing project in the DeFi movement. This post provides key information about Uniswap and how to trade on the decentralized exchange platform.
What is Uniswap?
You probably know a lot about Uniswap by now, but a brief review wouldn’t be too much information.
This DeFi project was introduced in November 2018 by Hayden Adams, with the inspiration coming off of an existing technology initially described by Vitali Buterin, ETH co-founder.
Uniswap is an entirely decentralized ETH-based protocol built on smart contracts rather than centralized order books, thereby allowing users to swap ERC20 token seamlessly. This platform offers automated liquidity facilitated by a simple but formalized algorithm.
Uniswap is censorship-resistant i.e. any user can set up a newmarket and receive rewards for that. This DEX boasts growing liquidity, earnings for liquidity providers and decentralized holding and trading operations.
How does Uniswap Work?
Before trading on Uniswap, it’s important to understand how the platform works.
Uniswap works based on a market maker algorithm known as CPMM (Constant Product Market Maker), a variant of the AMM (Automated Market Maker) algorithm. In simple terms, CPMM are smart contract algos that hold liquidity pools for trading operations. These pools or reserves are explicitly funded by lenders or liquidity providers.
Anyone can provide liquidity by depositing ETH, ERC20 token or a pair of ERC20 token, and as an incentive, they receive fees or tokens according to their contribution to the pool. With the Uniswap protocol, there are no middlemen, platform fees nor individual price dictators.
How to trade on Uniswap
Trading on Uniswap is not rocket science and it’s relatively easy to comprehend. However, the basics of leveraging on wallets and ETH must be honed, only then, Uniswap becomes fairly intuitive. Here are some steps on how to trade on Uniswap.
- First thing first, ensure that you have an ETH wallet that can interface with smart contracts.
A wallet like MetaMask functions smoothly with most decentralized finance apps via its Chrome extension. There is also a MetaMask mobile wallet software that was rolled out earlier in September 2020.
- Visit the Uniswap user interface.
- Connect your choice wallets such as MetaMask or any wallet that supports Ethereum and smart contracts. To connect your wallet, visit the website, launch the App and you’ll be directed to the Pool/Swap page. Select your preferred Uniswap version (V2 is more preferred).
Why is the Uniswap V2 preferred?
The recent attention received by Uniswap as been down to the introduction of V2 – a significant upgrade that enables direct ERC20/ERC20 swaps. V2 also provides support for ERC20 tokens like USDT and OmiseGo that were previously incompatible, coupled with several technical improvements that make it a preferred choice.
- Connect your wallet.
- You could either fund your MetaMask web or mobile wallet via the Uniswap UI or InstaDApp or just get some Ethereum-based tokens. Another option would be Zapper.fi although it restricts wallet funding to just ETH rather than ETH and an addendum token.
- Since you’ll be trading, use the swap option.
- Select the input token (exchange from). Since Uniswap supports a significant number of Ethereum-based tokens, you’ll find assets such as MKR, LEND, DAI, USDT, WBTC, TUSD, BAT, USDC, and so many others.
- Select the output token (exchange to) and Uniswap will provide some details about the exchange/swap rates.
- Click on swap and a preview of the transaction request will pop-up on your screen
- Upon confirmation, the exchanged token/asset will now reflect in your MetaMask or preferred ETH-based wallet.
Uniswap is an innovative ETH-based exchange protocol that allows anyone with an ETH compatible wallet to trade tokens in a decentralized manner. Although there are a few limitations at this time, it holds an exciting future for decentralized and trustless trading of tokens and assets. With the implementation of the new scalability solutions – Ethereum 2.0, Uniswap could benefit immensely and also improve trading protocols.