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A Beginner’s Guide to Uniswap (UNI)
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In Brief
Dive into our beginner's guide to Uniswap. Learn how UNI tokens function, how to buy UNI through Trust Wallet, and much more in this comprehensive overview.
This guide offers a comprehensive look at Uniswap, tracing its origins back to a concept proposed by Ethereum's co-founder, its development by Hayden Adams, and its rise to prominence within the DeFi sector. We delve into the mechanics of liquidity pools, the algorithmic determination of prices, and the protocol's contributions to improving liquidity and reducing slippage in decentralized trading. The exploration extends to the UNI token, detailing its role in governance, distribution mechanisms, and its impact on the protocol's democratic and community-centric governance model. Through this objective lens, we aim to provide a foundational understanding of Uniswap's function, significance, and its evolving landscape in the broader context of digital finance
Before we get started, remember that you can easily deposit, manage, buy, and sell the Uniswap (UNI) token using Trust Wallet.
What is the Uniswap Protocol?
Uniswap is a decentralized finance (DeFi) protocol that facilitates automated transactions between cryptocurrency tokens on the Ethereum blockchain through the use of smart contracts. It's an example of an automated market maker (AMM), a critical component of the DeFi ecosystem, providing liquidity to the market through a series of decentralized liquidity pools.
Uniswap was created by Hayden Adams in 2018, inspired by a concept proposed by Ethereum co-founder Vitalik Buterin. Adams, a mechanical engineer by training, entered the blockchain space with little initial knowledge of cryptocurrencies but quickly grasped the potential impact of decentralized exchanges. Uniswap launched in November 2018, aiming to solve key issues in decentralized trading, such as liquidity and slippage, by allowing users to trade without intermediaries and with high efficiency and security.
How Uniswap Works
The core principle behind Uniswap is the use of liquidity pools rather than traditional market-making mechanisms. In these pools, tokens are traded automatically without the need for order books, using an equation that sets the price based on the balance of two tokens in a pool. This approach allows Uniswap to provide constant on-chain liquidity between any two Ethereum-based assets.
Liquidity Pools and Trading: Uniswap allows users to swap ERC-20 tokens without the need for a traditional buyer and seller to create a market. Instead, users lock tokens into smart contracts, creating liquidity pools from which others can trade. Prices for these trades are determined by a mathematical formula based on the relative supply of the two tokens in the pool.
Yield Farming and Incentives: Liquidity providers earn fees from trades that happen in their pool, incentivizing the provision of liquidity. This mechanism not only facilitates trading but also allows liquidity providers to earn a return on their holdings.
Version Updates: Since its inception, Uniswap has seen several version updates, each introducing new features and improvements. The most notable, Uniswap V2 and V3, have introduced functionalities such as price oracles, improved liquidity provision efficiency, and concentrated liquidity, allowing liquidity providers to allocate their capital within specific price ranges.
Uniswap has played a pivotal role in the DeFi movement, significantly lowering the barrier to entry for liquidity providers and traders alike. Its innovative approach to decentralized trading has inspired a plethora of other AMM protocols across various blockchains. The protocol's success has demonstrated the potential for DeFi to offer viable alternatives to traditional financial systems, with Uniswap at the forefront of this transformation.
Uniswap is an important protocol within the Ethereum ecosystem, continually evolving to meet the demands of the DeFi space. Its creation and ongoing development reflect the dynamic and innovative nature of decentralized finance, offering users around the globe permissionless access to digital asset trading and liquidity provision opportunities.
What is the UNI Token?
The UNI token is the native governance token of the Uniswap protocol, a leading decentralized finance (DeFi) platform that facilitates automated trading of decentralized finance (DeFi) tokens. Introduced in September 2020, the UNI token was launched to decentralize the governance of the Uniswap protocol, enabling community-led growth and development.
Purpose and Functionality: The primary function of the UNI token is to facilitate governance within the Uniswap ecosystem. Token holders can propose changes to the protocol, vote on proposed changes, and participate in the management of the Uniswap treasury, protocol fee switch, and other key decisions affecting the platform. Essentially, UNI tokens give holders a say in the direction and implementation of protocol upgrades and community initiatives.
Distribution and Allocation: The UNI token launch was notable for its broad and equitable distribution. A significant portion of the total supply was allocated to previous users of the protocol through an airdrop, rewarding early adopters and users with a stake in its future governance. Additional allocations were made to liquidity providers, the Uniswap treasury, team members, and future governance initiatives, ensuring a wide distribution of governance power.
UNI Token Use Cases
Governance: The primary use case for UNI tokens is to participate in governance votes, helping decide on changes to the protocol and the use of community treasury funds.
Liquidity Mining: Uniswap has periodically enabled liquidity mining programs where users can earn UNI by providing liquidity to selected pools on the platform.
Community Treasury: The UNI token governs Uniswap’s community treasury, which accumulates funds that can be used for various purposes as decided by UNI holders, such as grants, strategic partnerships, additional liquidity mining programs, and other initiatives to support the ecosystem's growth.
Incentives for UNI Holders
As of writing of this article, Uniswap has recently announced significant updates to its governance model, aiming to enhance the protocol's growth and success by incentivizing UNI token holders through staking rewards. This update involves a large-scale overhaul designed to encourage active, engaged, and thoughtful participation among its community. The proposal focuses on rewarding UNI token holders who stake and delegate their tokens, with the intention of fostering a more engaged and responsible delegate community. This approach is expected to align rewards with active governance participation, promoting long-term sustainability and growth for the Uniswap ecosystem.
At the core of the proposed upgrades are two new smart contracts: V3FactoryOwner.sol and UniStaker.sol. These contracts are designed to facilitate the permissionless collection of protocol fees and their pro-rata distribution to engaged UNI token holders. The V3FactoryOwner.sol contract allows for the collection of fees from the pools within the Uniswap protocol, incentivizing external parties to deposit a specific amount (recommended to be 10 WETH) to claim these fees, which are then distributed to UNI stakers via the UniStaker.sol contract. This contract, in turn, manages the delegation and fee distribution, requiring accounts to delegate their UNI tokens to earn a share of the protocol fees.
The announcement of these governance and staking reward mechanisms has had a significant impact on the market, with the price of UNI tokens experiencing a sharp increase. This response from the cryptocurrency market underscores the community's support for initiatives that aim to enhance governance participation and reward mechanisms within the Uniswap ecosystem.
For those interested in engaging with Uniswap's updated governance model, the process involves staking UNI tokens and participating in the governance through delegation. The proposal's technical details and its impact on Uniswap's governance and token economy reflect a strategic move towards a more decentralized and engaged community governance structure, aiming to secure Uniswap's position as a leading decentralized finance (DeFi) protocol for the long term.
How to Buy Uniswap (UNI) Using Trust Wallet
You can easily buy UNI tokens using Trust Wallet, via our trusted partners. Here’s how:
Select “Buy” from the home screen
Search for “UNI” or “Uniswap” and select it.
Choose the currency you want to use, then enter the amount of UNI you want to purchase.
Select the third party provider & payment method you’d like to use.
Select the Buy button and complete the remaining steps.
How to Deposit Uniswap (UNI) to Your Trust Wallet Address
In addition to buying UNI directly using Trust Wallet, you can also deposit UNI from another wallet address or from a centralized exchange. Here’s how:
Select “Receive” from the home screen
Search for “UNI” or “Uniswap” and select it.
From here you have two options. You can either
Copy your deposit address and use that on your exchange account or other wallet to send funds to.
Use the “Deposit from exchange” option to deposit crypto seamlessly from your exchange account.
Access the Uniswap App Using Trust Wallet
Even though you can swap crypto directly in Trust Wallet, you can also connect to Uniswap to explore any swap pairs that may not be available directly in Trust Wallet. And whether you’re using the Trust Wallet mobile app or browser extension the process is seamless.
In this example we’ll have a look at how it’s done with the mobile app.
Choose “Browser” in the bottom row of the home screen.
Go to app.uniswap.org and select “Done”.
Select “Connect wallet”.
Choose Trust Wallet.
Select “Connect”
And that’s it. Now you’re connected to Uniswap via your Trust Wallet.
Closing Thoughts
Uniswap has been a mainstay in Web3 for years and looks poised to continue contributing significantly to the future of decentralized finance (DeFi). This beginner's guide has taken you through the essentials of the UNI token, how to acquire it via Trust Wallet, and the critical role Uniswap plays within the expansive DeFi ecosystem. As we draw this exploration to a close, it's crucial to always do your research, and to remember that the world of DeFi is constantly evolving. Explore DeFi using Trust Wallet and stay tuned for more.
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Note: Any cited numbers, figures, or illustrations are reported at the time of writing, and are subject to change.