A step-by-step guide for beginners

Uniswap Decentralized Exchange (DEX) is the most popular DEX based on the Ethereum blockchain. For users wondering “What is Uniswap?”, this article provides an overview of what it is and how it works, as well as different ways users can get started with Uniswap DEX.

Uniswap allows users to trade cryptocurrency tokens without relying on an intermediary. Due to the independence from third parties, only economic rents are charged. Instead of this, Uniswap relies on smart contracts to execute the trades. Smart contracts are algorithms that run automatically once certain preset conditions are met.

How does Uniswap work?

Since Uniswap is an open-source protocol, many DEXes have been released with the suffix “swap”. These logs are essentially copies of the original Uniswap source code. They differ in the graphical user interface (GUI) as well as in the differentiation of the offer and the positioning.

A step-by-step guide for beginners
A step-by-step guide for beginners

The most famous “and controversial” of these imitators is Sushiswap. After copying the Uniswap source code, he launched a vampire attack or vampire attack. A vampire attack consists of a DeFi protocol that offers various incentives to liquidity providers. This type of attack aims to drain liquidity from the target protocol.

How did Sushiswap perform a successful vampire attack? The platform launched an aggressive marketing campaign. They also made it easier for Uniswap liquidity providers to switch. Finally, they offered incredibly lucrative rewards to make it worthwhile.

Another less controversial example is Pancakeswap. This DEX resides on the Binance Smart Chain. Pancakeswap offers non-fungible tokens (NFTs) and yield farming opportunities, which Uniswap does not offer.

But still, Uniswap is the first to be DEX based on an automated market maker model (AMM, for its acronym in English), Rejection of the traditional open book model. The open-book model is not that favorable for DEXs due to liquidity issues, among other things. However, The AMM model uses a liquidity pool with a constant product market maker model and is therefore based on the constant product formula:

It’s worth noting that In version 1 or v1 of Uniswap, liquidity pool providers faced an inconsistent risk of loss. In other words, it’s best to think of v1 as a minimally functional product released for beta (or even alpha) testing.

With each iteration, Uniswap brought significant improvements to users. For example, v2 introduced UNI token oracles and airdrops. UNI token are the official government token of the DEX Uniswap. Uniswap users received airdrops of these tokens if they used the platform before September 2020.

At v3, the most noticeable improvement came in the form of concentrated liquidity. This new form of liquidity allows Liquidity providers set the terms on which they would receive their commissions.

Likewise, Uniswap v3 was released on the Optimistic Ethereum network. Optimism is a Layer 2 scaling solution that is vastly superior to Ethereum’s Layer 1 solution. Its main advantages are the reduction of slippage and high gas rates, as well as the speed of almost instantaneous transactions.

Then, How to buy coins on Uniswap? Before delving into the topic of using Uniswap, it is important to answer the question: Is Uniswap safe to use? Are Smart Contracts, Blockchain Technology and Decentralized Finance (DeFi) Safe? These are the technologies on which Uniswap is based.

The Ethereum blockchain is extremely secure, barring any vulnerabilities that are open to exploits. For example, Uniswap suffered an exploit bug with a reentry attack in the past, but the bug has since been fixed (making Uniswap stronger in the long run). And since then, liquidity and trading volume have only increased, and significantly so.

Now let’s see how the platform can be used.

How do I use Uniswap?

There are many options available to users who want to learn how to trade on Uniswap.. This section covers using Uniswap with Mobile and Trust Wallet, as well as the Coinbase wallet.

But first, the steps to use Uniswap protocol with Metamask will be discussed. Then, this section introduces the steps for the two mobile-friendly approaches.

Note that Metamask is just as easy to use on mobile. But still, Since it is a web wallet that acts as a browser extension, the user experience is flawless on desktop computers, practically without competitors. Because of this, this article will focus on the Metamask desktop experience.

How to use Uniswap with Metamask?

The steps to use Uniswap with Metamask are shown in the figure below:

How to use Uniswap with Coinbase

Coinbase’s approach might be less intimidating for US residents who are already familiar with the platform. Beginners should follow the steps below after opening a Coinbase account. If you already have an account, you can start with step 1.

How do I use Uniswap with Trust Wallet?

 Wallet is one of the most popular mobile wallets, and there’s a reason for that. Trust Wallet is easy to use, user-friendly and offers a range of tools for users. Below are the steps to use Uniswap with Trust Wallet.

A key deterrent for new Uniswap users is Uniswap’s exorbitant fees. Because Uniswap is hosted on the Ethereum blockchain, it relies on ETH for gas fees. Due to Ethereum’s design, higher congestion leads to higher gas fees as this fuels a bidding war between users competing to have their transactions inserted into the next block first.

To avoid failed transactions, thinks Go into the Uniswap settings. (Users can do this by a click on the gear icon). Before executing a trade, users should set the slippage tolerance to around 12%..

Slippage tolerance is simply the difference in price between when a transfer is confirmed and the price sellers are willing to accept.. Setting the slippage tolerance ensures that user transactions are executed in advance. Early execution increases the chances that the transaction will be included in the next block.

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