Why is Uniswap (UNI) so Popular?

It doesn't take a trader too long before they venture across Uniswap. Uniswap operates as the largest DEX (decentralized exchange) on the Ethereum blockchain and in the world. The protocol pioneered the concept of liquidity pools and still remains a top choice for both startups and traders. 

So what makes Uniswap so popular, and how has it managed to remain the top-performing DEX despite the slew of more technologically advanced competitors? Why do traders continue to flock to this protocol, and why do so many people swear by this DEX? Here's everything you need to know about Uniswap.

Brief History on Uniswap (UNI)

Interestingly, the concept of a decentralized exchange was discussed as early as 2016. At that time, Ethereum users were eager to prevent further centralization of the crypto exchange market as major centralized platforms like Coinbase began to create choke points. Interestingly, it was Vitalik Buterin, Ethereum’s Founder, who first explained how an AMM (automated market maker) style DEX like Uniswap could function on the Ethereum blockchain. 

AMMs operate differently than traditional exchanges. For one, they do away with the centralized orderbook to determine prices. Instead, they utilize off-chain sensors called oracles to monitor the value of assets across multiple exchanges. 

Traders interact with smart contracts when they trade on AMMs, which helps to reduce slippage. Slippage is a term used to describe the difference between the value you select to trade versus the actual value of the asset when the trade executes. In 2018, Uniswap went live and changed the market forever.

What Makes Uniswap (UNI) Such a Game Changer?

Uniswap was unique in many aspects. For one, it introduces the concept of open liquidity pools. These crowdfunding tools enable startups to seed pools simply by depositing the corresponding amounts of ETH and project tokens. Investors could then join these pools and receive LP (liquidity pool) tokens to represent their participation.

Notably, the more you invest into a liquidity pool, the more LP tokens you receive. These tokens are designed to go up in value as the total liquidity (amount of tokens held) in the pool increases. As such, they provide investors with an additional digital asset to leverage and secure rewards. 

A New Crypto Future

When Uniswap entered the market in 2018, the centralized nature of the sector meant that startups were at the mercy of large CEXs (centralized exchanges). CEXs like Binance and Coinbase could dictate their demands to any firm seeking to access their network's user base and liquidity. These requirements also included payments for the listing. Sadly, these requirements created more roadblocks to blockchain adoption.

Uniswap leveled the playing field with its open liquidity pool concepts. For the first time, startups could access public liquidity without spending tens of thousands of dollars. Uniswap eliminated the gatekeepers and financial barriers associated with the ICO (Initial Coin Offering) and IEO (Initial Exchange Offering) strategies. 

The introduction of IDO (initial DEX Offerings) meant that more projects could now gain access to the funds they needed to take flight. It also gave traders instant access to secondary markets. Unlike ICOs or IEOs, traders gained access to their investments and could trade them directly following their participation in a liquidity pool. Consequently, IDOs have become a favorite of those seeking start-ups with potential and quick turnarounds.

Privacy Matters

Another reason that Uniswap continues to remain popular is its privacy-centric approach. Uniswap users don’t need to fill out intrusive KYC (Know Your Customer) forms and other evasive documents. To utilize Uniswap, you simply need to connect your network wallet. 

This added privacy helps users in multiple ways. For one, it ensures that their data isn’t stolen. There have been billions in personal data stolen in just the last 12 months. This information is often found for sale on the dark web and other networks where anyone can gain access to this information. Uniswap users are safe from these incursions because the network doesn't keep any personal info on them in the first place.

Additionally, users’ assets are safer as well. The technical structure of Uniswap enables it to conduct non-custodial trading. Uniswap traders' crypto remains safely in their wallets until the point of trade. This strategy improves security because it eliminates the use of large custodial wallets that hold millions in users' assets. As such, hackers don’t find the same incentive to attack DEXs as they have with CEXs.

Uniswap Remains the DEX to Beat

Uniswap's influence and importance have grown considerably since its launch. Today, the Ethereum ecosystem is larger than ever. The sudden rise in the DeFi and NFT (non-fungible token) markets has helped cement Uniswap as a critical component of the movement. 

Additionally, the network has improved its services and added more functionality such as the Money Market feature, which enables HODLers to secure rewards lending out their EHT. For these reasons and many more, Uniswap is set to remain the dominant DEX for the foreseeable future.