Uniswap Exchange: What is Uniswap? Decentralized Exchange + UNI Token
Before understanding what is Uni swap let’s see an Example
Uniswap Exchange: Imagine you’re a farmer from a couple of thousand years ago in this scenario you farm potatoes. I mean you can do a lot with a potato you can make french fries, mashed potatoes, hash browns a lot of useful and tasty things however because you’re a potato farmer you grow all the potatoes and wish to try something that uh doesn’t grow in the ground.
So you’re wanting a full juicy bright red apple to enjoy now remember this is a few thousand years ago so how are you going to get that apple well you know a friend who has a friend who actually farms apples. so you make the trip over to his apple farm and you ask him if you can have some of his apples if you’ll share some of your potatoes he kindly agrees since he’s also sick of apples and you guys make the trade now there was no intermediary there were no fees no taxes you didn’t have to show them your driver’s license or anything you just traded a raw material with someone else now let’s fast forward to about 10 years ago.
Let’s say you grew potatoes in your backyard and you decided that you wanted an apple how would you go about this well personally I would try to sell my potatoes for some cold hard cash on something kind of like Facebook marketplace then I’d walk to my local grocery store and use my new cash to buy an apple the cash is used as a currency unlike what we had before cash doesn’t go bad but potatoes do so you decided to sell all your potatoes as quickly as you can so that you can save up cash to buy apples whenever you want or really any other fruit for that matter even if it’s grown on the other side of the world. in fact, you can pay a small fee for almost any fruit that you want at your local grocery store in this scenario now we are using a currency to trade something to meet in the middle so we don’t actually have to go to that apple farmer or the pineapple farmer or the coffee bean grower and we don’t have to have a conversation with them instead, we can have an intermediary like the grocery store always keep stock of our favorite fruits so we can buy them whenever we want and very easily.
We pay the supermarket a fee so that they can stay in business and so that they have a reason to keep stock for us so now we’re using currencies and paying fees but at least it’s seeming to make our life a little easier with a little bit more variety as time goes on the supermarket wants to make more money so what do they increase the fees they know that you can’t go to the other side of the world to talk to that coffee bean grower so they can charge almost whatever they want.
Whta is Uni Swap?
Imagine you wanted to find that original apple farmer and trade your potatoes with him again so that way you avoid having to switch your potatoes to cash and then cash to apples so you don’t have to pay the fee well this is basically what unit swap is the uni swap exchange
They let you swap any Ethereum token for any other Ethereum token and you pay a very very small fee it does this by essentially being the grocery store but without cash see instead, you give them your potatoes and they immediately give you the apples. so how do they do this well they keep a very large bin in the back with a ton of apples and potatoes so that anyone who wants to can make a trade if someone comes in and buys a ton of apples.
So there’s not very many apples left in the bin then the grocery store they just start charging more potatoes for each apple they’ll make you pay two potatoes for each apple then they’ll make you pay three potatoes for each apple until someone comes in with a bunch of apples and restocks the supply.
If this example is making sense to you we’ve done our job and I hope that you reward our hard work and creativity by Leaving a comment button on this article now to extrapolate out this example
Let’s say your potatoes are Ethereum and the apples that you want to buy are basic attention tokens which is actually a pretty popular Ethereum token when you give the grocery store which is uni-swap in this case Ethereum give you a fair market price of basic attention token.
Now after you’re done the price of the basic attention token rises because there’s less of it since you bought it and the price of Ethereum drops because there’s more of it since you sold it to them it’s basic supply and demand within the grocery store but this is uni swap.
So the next guy that comes along and wants to trade will have to buy basic attention token at a higher price or sell some Ethereum at a higher price in some cases, a trader may be able to buy Ethereum for $2000 at Coinbase and sell it to uni swap for $2050 making a profit even though what they’re actually doing is just evening out this liquidity pool that way uni swap or the grocery store has an even amount of potatoes and apples or Ethereum and basic attention token.
Now, this is essentially what an automated market maker is but we have a whole article on that or we will so you should subscribe to see it soon but this also begs the question.
Where is all of that ethereum and basic attention token coming from in the first place?
Well it’s time to bring out some technical terms first in this analogy the grocery store in uni swap is actually called a liquidity pool
Now there’s a pool of Ethereum and basic attention token with a ton of coins of each of them and the prices of each are such that as more of one is traded up the other is traded down secondly we call the place where the coins come from liquidity providers because they provide the initial liquid assets to the pool
In fact, you can become a liquidity provider (lp) very easily you just have to give your money and your tokens to the uni swap pool boom you’re what they call an lp.
Why would you want to be an LP
Well, remember when I said there was a very small fee to trade on uni swap well that fee doesn’t go to the government it doesn’t go to uni swap but it actually goes to the actual investors of uni swap the liquidity providers that way we can reward them for allowing us to do quick swaps of our coins even if the fee is .03 for each trade if there are 10 trades using your coins a day for a whole month that’s 9 a month which is 108 ROI for any liquidity provider. which is 108 return on your investment.
Now you should know there are two main uses for uni swap you could be a token swapper and change your Ethereum for basic attention token for only point zero three percent which maybe you want to do in fact uni swap currently has over $1 Billion of trading volume each day or you could be a liquidity provider and earn a return on your investment by lending it to the pool right now there are $9 Billion in all of the pools that uni swap has.
Now this is the foundation of what uni swap is you should know that it’s also all code it’s just being run by servers there’s no regulations on it there are no taxes technically there’s not even someone to stop it if they wanted to someone could just start another server and run the program it functions like a foreign bank allowing you to change your United states dollars to Canadian dollars then to Indian rupees then the Japanese yin but it’s also decentralized so there are super low fees and absolutely no taxes.
See if uni swap exchange did not exist you would have to sell your Ethereum then you’d have to find an exchange that allows you to buy a basic attention token and not all exchanges have both of these so you might have to change from one exchange to another exchange. uni swap solves a big problem.
What is Uni swap exchange?
The decentralized application that allows you to swap Ethereum tokens at uniswap.org now you should know that there’s also a uni swap token an Ethereum token that represents the decentralized application the uni swap token is created hand in hand with the uni swap exchange.
When you buy the uni swap token right now you really can’t do anything with it but down the road token holders should be able to make votes to specific changes on the exchange.
For example, since I said nobody controls it technically it’s code and token holders could agree to change something if they wanted to so if you hold a bunch of uni-swap and wanted to raise the trading price from 0.03% to 0.06%.
In fact, doubling the fee theoretically you could vote on that but right now they haven’t implemented a voting system the token really has no intrinsic value at the moment but it does represent the exchange and the exchange is very valuable and has a very useful purpose another reason for owning the uni swap token is that one day a percentages of all the trades happening might go to the uni swap token holders as well basically earning them passive income the same as a liquidity provider.
Now, this is all speculative though but here at Coinglid, we want you to have all the facts before making any financial decisions I hope you’ve enjoyed this video and hopefully learned a little bit about this booming new technology and a decentralized application called uni swap if you have any questions.