Crypto Deep Dive

UniSwap Fundamental Analysis

UniSwap Fundamental Analysis

Key Takeaways

  • UniSwap is currently trading at $8.95, as of July 29, 2022.
  • The UNI tokens gained a whopping 143% in the last couple of days of July.
  • UniSwap takes a significant step towards its ‘Fee Switch’ claim.
  • UniSwap acquired Genie in pursuit of the ecosystem including both NFTs and ERC 20 tokens.

What is UniSwap?

Uniswap (UNI) is one of the most popular decentralized trading protocols that is popular for facilitating automated trading of DeFi tokens. It is also an automated market maker (AMM) that was launched in 2018. Since its launch, it has gained considerable attention, mostly due to the fact that investors who own UNI tokens have the ability to portray their governance on the blockchain. It gained a lot of traction, especially in the year 2021 when the crypto space saw the DeFi boom. 

An important feature of Uniswap is the utilization of a factory or registry contract that deploys a separate exchange contract for each ERC20 token. These exchange contracts each hold a reserve of ETH and their associated ERC20. This allows trades between the two based on relative supply. Exchange contracts are linked through the registry, allowing for direct ERC20 to ERC20 trades between any tokens using ETH as an intermediary.

However, there are certain features of the UniSwap blockchain that makes it stand out among the various other projects available in the market. Some of the top unique features of the Uniswap (UNI) are:

  • Uniswap exists to create liquidity. 
  • It attempts to resolve issues of previous DEXs such as the EtherDelta platform in regards to liquidity. 
  • The protocol incentives the activity of market making by reducing costs and limiting risks for all parties since the entire process is automated. 

Also Read: Top Ethereum Projects by Total Value Locked (TVL)

How does UniSwap work? 

UniSwap helps in moving ahead from the traditional architecture of a digital exchange, which is without any order book. The UniSwap blockchain works with a variant of a model called Automated Market Maker (AMM) called the Constant Product Market Maker. 

The UniSwap platform makes use of blockchain-based smart contracts to help facilitate the decentralized trading of many different digital assets. Within the UNI blockchain, the pains of digital assets are swapped using liquidity pools. These liquidity pools make use of smart contracts to automatically rebalance after every trade. The Uniswap blockchain, which functions like an electronic ledger, is continually updated to reflect the trading activity occurring among the various Uniswap users. With its functioning like an exchange that is devoid of any involvement from a central authority, Uniswap is an automated market maker.

Also Read: Top Cryptos other than Bitcoin (by Market Cap)

Users of the Uniswap blockchain can participate in the decentralized exchange in several ways. The most notable ones are as mentioned below.

  • Create new markets: Users of the Uniswap protocol can use smart contracts to create new markets for exchanging new pairs of digital assets.
  • Swap assets via existing markets: Uniswap uses the platform to swap various digital assets via decentralized markets that have already been created.
  • Provide liquidity and earn rewards: Users can also provide liquidity by staking and agreeing to not trade or sell their digital assets. The users who stake their digital assets on the Uniswap platform are rewarded with UNI tokens.
  • Participate in Uniswap governance: Users who hold UNI tokens are empowered to govern the Uniswap platform. How so? It is with the voting power distributed in proportion to how many UNI tokens users have.

Additional Read: Top 5 DAO Tokens

Launch Date November 2018
Founder Hayden Adams
Blockchain Protocol Ethereum
Native Token UNI
Token Type Governance
Market Cap $6,661,095,997
Circulating Supply 744,834,284.16 UNI
Max Supply 1,000,000,000
Consensus Method PoW (Proof-of-work) 

UniSwap Whitepaper Summary

UniSwap has gone through various changes over a period of time. While the most recent changes have been in place after the announcement of UniSwap v3, below is the excerpt of how UniSwap was originally implemented, from the official V1 Whitepaper.

V1 Features

  • Add support for any ERC20 token using the Uniswap factory
  • Join liquidity pools to collect fees on ETH-ERC20 pairs
  • Liquidity-sensitive automated pricing using constant product formula
  • Trade ETH for any ERC20 without wrapping
  • Trade any ERC20 for any ERC20 in a single transaction
  • Trade and transfer to a different address in a single transaction
  • Lowest gas cost of any decentralized exchange
  • Support for private and custom Uniswap exchanges
  • Buy ERC20 tokens from any wallet using ENS
  • Partially verified smart contracts written in Vyper
  • Mobile-optimized open source frontend implementation
  • Funded through an Ethereum Foundation grant

Also Read: Top 5 Crypto DAO Projects to Look out for

Uniswap is made up of a series of ETH-ERC20 exchange contracts. There is exactly one exchange contract per ERC20 token. If a token does not yet have an exchange it can be created by anyone using the Uniswap factory contract. The factory serves as a public registry and is used to look up all token and exchange addresses added to the system.

Each exchange holds reserves of both ETH and its associated ERC20 token. Anyone can become a liquidity provider on an exchange and contribute to its reserves. This is different than buying or selling; it requires depositing an equivalent value of both ETH and the relevant ERC20 token. Liquidity is pooled across all providers and an internal “pool token” (ERC20) is used to track each providers relative contribution. Pool tokens are minted when liquidity is deposited into the system and can be burned at any time to withdraw a proportional share of the reserves.

Also Read: What are Decentralized Exchanges (DEX)

Exchange contracts are automated market makers between an ETH-ERC20 pair. Traders can swap between the two in either direction by adding to the liquidity reserve of one and withdrawing from the reserve of the other. Since ETH is a common pair for all ERC20 exchanges, it can be used as an intermediary allowing direct ERC20-ERC20 trades in a single transaction. Users can specify a recipient address if they want to receive purchased tokens at a different address from the one used to make a transaction.

Uniswap uses a “constant product” market-making formula which sets the exchange rate based off of the relative size of the ETH and ERC20 reserves, and the amount with which an incoming trade shifts this ratio. Selling ETH for ERC20 tokens increases the size of the ETH reserve and decreases the size of the ERC20 reserve. This shifts the reserve ratio, increasing the ERC20 token’s price relative to ETH for subsequent transactions. The larger a trade relative to the total size of the reserves, the more price slippage will occur. Essentially, exchange contracts use the open financial market to decide on the relative value of a pair and uses that as a market making strategy.

Also Read: Top 10 Crypto to Invest

A small liquidity provider fee (0.30%) is taken out of each trade and added to the reserves. While the ETH-ERC20 reserve ratio is constantly shifting, fees makes sure that the total combined reserve size increases with every trade. This functions as a payout to liquidity providers that is collected when they burn their pool tokens to withdraw their portion of total reserves. Guaranteed arbitrage opportunities from price fluctuations should push a steady flow of transactions through the system and increase the amount of fee revenue generated.

Since Uniswap is entirely on-chain, prices can change between when a transaction is signed and when it is included in a block. Traders can bound price fluctuations by specifying the minimum amount bought on sell orders, or the maximum amount sold on buy orders. This acts as a limit order that will automatically cancel if it is not filled. It is also possible to set transaction deadlines which will cancel orders if they are not executed fast enough.

The reason only one exchange per token can be registered to the factory is to encourage providers to pool their liquidity into a single reserve. However, Uniswap has built-in support for ERC20-to-ERC20 trades using the public pools from the factory on one side of the transaction and custom, user-specified pool on the other. Custom pools could have fund managers, use alternate pricing mechanisms, remove liquidity provider fees, integrate complex three-dimensional FOMO-based Ponzi schemes, and more. They just need to implement the Uniswap interface and accept ETH as an intermediary asset. Custom pools do not have the same safety properties as public ones. It is recommended users only interact with audited, open-source smart contracts.

Upgrading censorship-resistant, decentralized smart contracts is difficult. If significant improvements are made to the system a new version will be released. Liquidity providers can choose between moving to the new system or staying in the old one. If possible, new versions will be backward compatible and able to trade ERC20-to-ERC20 with the old versions similar to a custom pool.

Source: UniSwap Whitepaper

UniSwap Whitepaper Repository

UniSwap V2 Whitepaper

UniSwap V3 Whitepaper

UniSwap Use Case 

The DeFi space is fundamentally changing the way the world has access to finance and various financial services. Based on various blockchain technologies, DeFi negates the third party intermediaries in any financial transactions. This revolutionary step helped the power of financial freedom get back to only the parties involved. Since the boom of the crypto space in general, DeFi has seen a massive adoption. The UniSwap (UNI) blockchain protocol, is one of the largest DeFi projects by both market capitalization and the number of users, which is exploding in popularity in recent years. As a decentralized exchange, often referred to as DEX, it holds the vast majority of digital tokens available on the market and serves as the entryway to the exciting DeFi world.

UniSwap Use Case (1): Voting and Governance

The primary use case for the UNI tokens is the governance feature. UniSwap is one of the most well-known decentralized autonomous organizations (DAO) within the crypto space. This means that the UNI community members are able to participate in various protocol decisions by being able to vote for the decisions related to how the protocol will expand and change over time. The basis to qualify to participate in such votes, members have to be holding a certain amount of UNI tokens, which is the UniSwap protocol’s native governance token. 

UniSwap Use Case (2): Trading and Crypto token swap

The primary feature of UniSwap, being a decentralized exchange, is to provide a space where users can swap and exchange a wide variety of different crypto assets without a third-party intermediary. Unlike traditional exchanges, UniSwap’s decentralized exchange makes it easier for users to list their assets with minimal requirements. Simply put, UniSwap virtually makes any token available, as long as the trading pair involves ERC-20 tokens. 

UniSwap Use Case (3): Liquidity Pooling

Differentiating from traditional centralized exchanges, which execute orders based on order books, the UniSwap protocol automatically executes trades based on smart contracts. To help users in being able to swap tokens, UNI needs a liquid market. To make this feature available, at this point the liquidity providers or the LPs step in. The LPs provide their tokens into a liquidity pool in exchange for yields, which they incur in the form of a percentage of pool trading fees. Any LP, who meets the basic requirement of tokens can lend them into a pool in exchange for a fee. This fee is paid to the LPs each time a transaction is made from that respective pool. The fees for the LPs are paid in liquidity tokens. The tokens, therefore, represent the whole percentage of the entire liquidity pool owned by that liquidity provider. 

UniSwap Project Upgrades 

The latest update on going within the UniSwap ecosystem is its claim to ‘Fee Switch’. The fee switch has been the subject of long debates within the DeFi community for a while. This step of the UNI community, toward the switch, is going to have a big impact on both the UniSwap protocol and all UNI token holders.

WHAT IS UNISWAP FEE SWITCH? 

Users need to pay 0.3% to trade on Uniswap. A small percentage of the amount is sent to liquidity providers for every trade. From the ‘Free Switch’,  0.25% will be offered to the liquidity and 0.5% will be rewarded to UNI token holders. 

UNI token was trading at $8.25 and rose to 22.41% at the time of announcement. Uniswap rallied to 143% from its lowest value this year. It is believed that once the Uniswap Fee Switch is set in stone the demand for UNI tokens will increase. 

Source: CoinMarketCap

Price Prediction of UniSwap

The current market cap of Uniswap is $6,802,340,453. If the Uniswap  Fee Switch is set in motion the token may see a further upside. UNI’s performance in 2022 Q1 had shown a downtrend after which the token paced up to push the mean dollar invested age by a substantial margin in the last four weeks.

Additional Read: Top Crypto News: Uniswap Rallied over 8% after ‘Fee Switch’ announcement

As per the team of Uniswap, the protocol fee will be moved to a decentralized funding mechanism to reward ecosystem contributors. If the community wants to access these funds they can simply call a governance vote which will determine if a high number of members want to access the funds, they can accrue them by voting. 

UNISWAP TECHNICAL ANALYSIS FOR JULY 2022

The Uniswap price ever since it flipped during mid of June surged more than 100% to mark monthly highs above INR 500. Despite a small chunk of sellers currently extracting the profits, the price still maintains its levels above INR 500 firmly. Enough buying pressure is accumulated and hence the price is also expected to climb high as bears remain off-shore. 

During the coming weekend, the UNI price is expected to surge by more than 25% to 30% to mark highs close to INR 700. However, after undergoing a minor pullback and corrections, the prices are expected to settle above INR 720 to INR 740. 

Convert UniSwap Price in INR 

Additional Read: Uniswap Technical Analysis

UniSwap vs PancakeSwap

There are thousands of crypto assets already out there and more projects are being introduced to this revolutionary space every day. It is needless to say there are also many a crypto exchanges available for crypto traders as well! With so many options and everyone coming up with unique solutions to problems we sometimes did not even realize we had, becomes extremely difficult for a user to identify which of the top decentralized crypto exchanges to choose from. But need not to worry, let us first find out which exchange between the comparative Uniswap and PancakeSwap is better. Both these exchanges are the biggest DEXes in the world, thus, there is no right or wrong answer to which is better as both have their own advantages. 

PancakeSwap Advantages

PancakeSwap is based on Binance Smart Chain that offers efficiency and affordability, as well as inter-blockchain compatibility. In February 2021 PancakeSwap surpassed Uniswap as the largest automated market maker-based exchange. However, PancakeSwap couldn’t last long in the position and was soon overtaken by Uniswap in September 2021. However, despite overtaking PancakeSwap, Uniswap still is in the second position in the list of top DEXs with the list being led by Biswap. 

While the adoption rate of PancakeSwap is still high, Uniswap remains the older DEX with a loyal and considerable user base. It was one of those projects that introduced AMM to DeFi which was not done before. Although PancakeSwap has more active users than Uniswap, the trading volume of the latter is higher. This indicates the users at Uniswap are trading at a higher value. 

Uniswap Advantages 

Uniswap is an Ethereum-based DEX, clearly, its transaction cost is way higher than the Binance smart chain-based PancakeSwap. This is one of the reasons why it could not dominate the DEX niche. BSC also provides faster transactions apart from just reducing the gas fees to pennies. The number of tokens listed on PancakeSwap is higher than that of Uniswap. Some unique and successful tokens such as FRONT and BAKE are listed on PancakeSwap. However, both these decentralized exchanges have low-quality listings. 

The choice of the token between Uniswap and PancakeSwap depends entirely on the preference and risk appetite of the user. Various factors must be kept in mind before investing in any crypto token. We always recommend DYOR ( Do your own research ) before investing in any crypto assets of your choice. 

Additional Read: UniSwap vs PancakeSwap: Comparative Analysis

Top Traded Crypto Pairs on UniSwap

  • ETH/USDT
  • ETH/USDC
  • ETH/DAI
  • ETH/WBTC

UniSwap Community 

Platform Link 
Github https://github.com/Uniswap 
Twitter https://twitter.com/Uniswap 
Youtube  https://www.youtube.com/hashtag/uniswap 
Reddit https://www.reddit.com/r/Uniswap 
Discord https://discord.com/invite/FCfyBSbCU5 
Telegram https://t.me/s/uniswaplistings 

Where and How to Invest in UniSwap (UNI)

Investing in crypto is very simple, safe, and secured with the CoinDCX crypto investing app. It doesn’t matter whether you want to invest in the UNI coin, explore the crypto app or create a watchlist for when your token of choice reaches the desired amount, we have got you covered! CoinDCX is India’s safest and simplest crypto exchange for your one-stop purchase of any crypto. 

Here are the 4 simple steps to buy your first metaverse token with CoinDCX. 

  1. Sign up on CoinDCX 
  2. Link your bank details 
  3. Complete your KYC
  4. Buy your Uniswap token (UNI) 
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