Have you heard about Uniswap Decentralized Exchange? If the answer is no, this post might be of your interest and if you already knew about it, maybe there is something you didn’t understand well enough and this reading will clarify your doubts.
What is Uniswap?
Uniswap is a Decentralized Exchange completely hosted on the Ethereum blockchain created to automate the exchange between ETH and ERC-20 tokens (without the need of wrapping the ETH). It also supports ERC-20 to ERC-20 trades. It has not need of KYC and unlike centralized exchanges, you will always have the control of your cryptocurrency. One of the best things of Uniswap are the gas prices, which are significantly cheaper than most decentralized exchanges.
To use Uniswap you will need MetaMask because it needs to interact with your Ethereum address, and if you want to make money you will need ETH and another token, this will be explained bellow.
Uniswap consist of two types of smart contracts: Exchange contracts and Factory contract. Each Exchange contract supports only one ERC-20 token and have a reserve of this token and ETH, thus allowing the trade to happen. One cool thing about Uniswap is that anyone can easily “list” any token. So, how is this possible? Because the Factory contract has a method called createExchange, which anyone can call from the Liquidity Pool tab, and deploy a brand new Exchange contract for the token you specify.
Introducing Uniswap’s Liquidity Pools:
If you want to make money this is the part of this article you should try to comprehend. When a certain Exchange contract is created, it needs ETH and the token supported, otherwise the trade wouldn’t be possible. How this is achieved? Because it allows anyone to contribute to the liquidity pools of that particular token, depositing ETH and the token to the smart contract. You may be asking: How do i benefit from depositing my money? That’s because you get a percentage of all the fees of that particular exchange, this percentage depends of the amount of ETH and token you contributed with compared to the total of the liquidity pool. To add liquidity you need to deposit a equivalent value of ETH for the amount of the ERC-20 token you want to deposit. You can withdraw at any time retrieving your balance and the earnings. Both actions can be performed on the Liquidity Pool tab. This is all you need to know for using Uniswap’s Liquidity Pool, I always recommend to try it with a small amount, watch how much you can earn from it and decide if you want to invest