Cryptocurrency Explained: What Is UniSwap And How Does It Work?


28 April 2022

If you’ve ever wanted to understand more about what is UniSwap?, you’ll discover all you need here, including a comprehensive description of how the service works.

Uniswap Exchange is Ethereum blockchain-based computer tool that enables decentralized token exchanges. It’s powered by unicorns, of course (as illustrated by their logo).

Uniswap allows traders to exchange Ethereum tokens without putting their money in the hands of anybody else. In the meanwhile, anybody may lend their cryptocurrency to liquidity pools, which are specialized reserves. Fees are paid in return for putting money into these pools.

bePAY is going to introduce what is the mechanism through which these magical unicorns transform one coin into another? To make use of Uniswap, what do you need? Let’s continue to read.

  • What Is UniSwap?
  • How Does UniSwap Work?
  • How To Use UniSwap?
  • FAQs About UniSwap
  • Final Thoughts

What Is UniSwap?

UniSwap Explanation

After debuting in November 2018, Uniswap was one of the first decentralized finance (or DeFi) services to garner considerable momentum on Ethereum. Numerous other decentralized exchanges have since arisen (including Curve, SushiSwap, and Balancer), but Uniswap remains by far the most popular. Uniswap transacted more than $10 billion in weekly trading activity as of April 2021.

Uniswap pioneered the Automated Market Maker approach, in which users contribute Ethereum tokens to Uniswap’s “liquidity pools,” and algorithms determine market prices based on supply and demand (as opposed to order books, which match bids and offers on a centralized exchange when compare Uniswap vs Coinbase exchange).

Users may earn rewards for donating tokens to Uniswap liquidity pools in exchange for supporting peer-to-peer trading. Anyone, from any location, may contribute tokens to liquidity pools, trade tokens, or even generate and list their own tokens (using Ethereum’s ERC-20 standard). Uniswap presently supports hundreds of tokens, and some of the most popular trading pairings include stablecoins such as USDC and Wrapped Bitcoin (WBTC).


What Is UniSwap?

>> Learn more about What is Wrapped Token? — How To Use Them?

Among the possible benefits of decentralized exchanges such as Uniswap Exchange are the following:

  • Safe: Because both parties are trading directly from their own wallets, funds are never moved to a third party or exposed to counterparty risk (i.e. entrusting a custodian with your valuables).
  • Global and without permission: There is no sense of borders or trade restrictions. Anyone with a smartphone and an internet connection is eligible to participate.
  • The convenience of usage and anonymity: There is no need to create an account or provide any personal information.

UniSwap’s Cryptocurrency

What is Uniswap token used for? UNI, Uniswaps’ native coin, is a governance token. This enables holders to vote on platform enhancements and modifications, such as how newly created tokens should be allocated to the community and developers, as well as any changes to fee structures.

UNI was first launched in September 2020 to deter consumers from defecting to competitor DEX SushiSwap. One month prior to the introduction of UNI tokens, SushiSwap — a fork of Uniswap – rewarded Uniswap customers for allowing SushiSwap to reallocate their cash to the new platform with SUSHI tokens.

This was a novel sort of token that granted users governance powers over the new protocol in addition to a proportional share of the platform’s transaction fees.


UniSwap’s Cryptocurrency

How Does UniSwap Work?

The Uniswap exchange network mimics a typical exchange in that it makes it easy to purchase and sell crypto assets.

It does this by allowing users to deposit crypto assets that may be accessed programmatically by traders using smart contracts. Those that trade against assets in the pool pay a charge, which is subsequently allocated proportionately to all liquidity providers, depending on their contribution to the pool

Uniswap ‘s liquidity pools

When you have two Tokens in your Uniswap pool, you’ve got a trading pair for those assets! In order to price the pair, Uniswap employs the formula (x * y = k). Each token has its own pool balance, x and y, and k is the pool’s constant price.

By providing an equal value of both tokens to a freshly established liquidity pool, a first liquidity provider establishes the starting price for the assets in the pool.

Using the algorithm, buyers may then trade tokens inside the pool. As a result, the pool’s total price is maintained at a constant level by the formula used by the smart contracts that operate the protocol. In addition, since each trade carries a charge, the pool’s overall liquidity rises somewhat with each transaction, making the system lucrative for the liquidity providers that offer it.

Because of this change in price, another buyer who makes a transaction in the same direction will get a little worse rate, which will assist maintain the overall system’s equilibrium.


How Does UniSwap Work?

How To Use UniSwap?

Because Uniswap is an open-source protocol, anybody may write a frontend application for it. The most often used, however, are and

Navigate to the Uniswap user interface.

  • Ensure connecting your wallet to your PC/laptop. You may use MetaMask, Trust Wallet, or any other Ethereum wallet that is supported. Additionally, Uniswap vs Coinbase wallet is a viable option.
  • Choose the token from which you want to trade.
  • Choose the token for which you want to swap.
  • Select Swap.
  • In the pop-up box, you may preview the transaction.
  • Confirm the transaction request in your wallet.
  • Wait for the Ethereum blockchain to confirm the transaction. You may keep an eye on its progress at


How To Use UniSwap?

One difficulty that users of all Ethereum-based applications, including Uniswap, experience is transaction fees (also known as gas), which may fluctuate significantly in price and make the network prohibitively costly to operate.

Numerous solutions to this problem are now in development, ranging from the long-awaited transfer to the ETH2 blockchain (scheduled for sometime in 2022) to the more immediate launch of a “Layer 2” scaling solution dubbed Optimism later this year. The creators of Uniswap are optimistic that Optimism will greatly reduce the cost of Uniswap transactions.

Uniswap v3 debuted in early May 2021 with the purpose of making transactions quicker and more affordable.

>> Find out why you need to Create Your First Crypto Wallet?

UniSwap’s Pros And Cons

UniSwap’s Pros:

  • Enables the decentralized exchange of a large number of digital assets
  • Smart contracts to allow asset trading that is potentially more cost-effective and efficient.
  • Users of Uniswap may earn UNI by promising not to sell or exchange their crypto assets.
  • The Uniswap platform’s decentralized governance facilitates participation by anybody.

UniSwap’s Cons:

  • Uniswap exchange is a cryptocurrency exchange that supports solely Ethereum-compatible coins.
  • Proof of work is a time- and energy-consuming activity.
  • To pay transaction processing costs, users must hold ETH.
  • Utilizing a decentralized exchange needs the use of a self-hosted wallet that is compatible.


Uniswap Pros And Cons

FAQs About UniSwap

Is Uniswap Safe?

In terms of security, Uniswap’s decentralized exchange runs on blockchain technology. It’s possible to hack smart contracts on Uniswap, however, it’s not very common. Security breaches on the Uniswap platform cost the company $340,000 in 2019.

What Is UniSwap Token Used For?

UNI is the protocol’s native token, and it confers governance privileges to its holders. This simply implies that holders of UNI may vote on protocol modifications. We already explored how the protocol has already served as a kind of public benefit. The UNI token exemplifies this concept.

Is Uniswap A Good Exchange?

This cryptocurrency exchange is well-suited for: Traders with a cryptocurrency wallet interested in exchanging tokens or earning interest via crypto staking.


Is Uniswap A Good Exchange?

Final Thoughts

Uniswap is a state-of-the-art Ethereum-based trading platform. It enables anybody with an Ethereum wallet to swap tokens without the need for a third party to intervene.

While this technique does have certain limits, it has some intriguing potential implications for the future of trustless token exchanging. Once Ethereum 2.0’s scaling solutions are implemented, Uniswap is expected to benefit as well.

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