If you have already traded ERC-20 tokens, you may already have experience with Uniswap. Uniswap is a decentralized exchange that offers investors a faster and safer way to convert ERC-20 tokens or Ethereum into other projects on the Ethereum network. Uniswap ' s token, UNI, is a governance token that gives investors a voice in future project developments.
Want to learn more about buying Uniswap? Our guide will help you determine if this token is right for your portfolio and how to get started investing.
What is Uniswap?
Uniswap is a decentralized exchange, which means that it does not rely on a single point of failure. In contrast, most exchanges act as centralized exchanges. For example, when you buy and sell cryptocurrency through a platform like Coinbase, you rely on Coinbase to act as a middleman to execute your trades. While this is convenient and provides you with a quick exchange, it also means that you have to pay any fees that the exchange charges you, whether they are above market rates or not. This also means that your on-exchange wallet is subject to a single point of failure if the exchange is the target of a hacking attempt.
How Uniswap Works
Uniswap's decentralized exchange protocol provides investors and traders with a quick way to "swap" any ERC-20 token for another supported ERC-20 token or Ethereum. Uniswap builds on the existing technology that manages the Ethereum network and turns its token (UNI) into an ERC-20 token that can be stored in almost any type of wallet that supports Ethereum. If you have Ethereum or any other type of ERC-20 token in your wallet, you can now even test Uniswap through the app.
This system offers you some advantages over traditional centralized exchanges:
- Uniswap's system has a built-in guaranteed swap rate, which means that the system cannot execute your order if it sees a sudden price movement in your favor.
- The decentralized exchange system allows investors to access a larger liquidity pool, so you can swap your ERC-20 token with hundreds of other offerings.
- The decentralized exchange does not rely on a singular point of failure, which means there is no order book and different fees determined by current market conditions. These fees go directly back to users on the network who work to provide liquidity to the exchange, which helps the Uniswap system stake and grow.
The Uniswap system was developed in 2018. Its token UNI acts as a governance protocol. This means that if you hold UNI, you get a voice in future matters regarding the use of Uniswap Treasury and network upgrades. UNI was launched on September 2020 and has since risen to become the 33rd largest cryptocurrency by total market capitalization.
The first wave of UNI was distributed via an airdrop for users on the network who had participated in the exchange in some way. Now you can buy and sell UNI using the same method as any other ERC-20 token.
Step 1: Open an online account.
Don't have an ERC-20 token to exchange for Uniswap yet? No problem - you can still buy and sell UNI directly through central exchanges. A cryptocurrency exchange (sometimes called a "cryptocurrency broker") gives you access to a trading platform that lets you submit orders to buy and sell cryptos. Once you place an order, your broker executes the order according to your instructions, usually for a fee or commission.
Step 2: Buy a wallet
One of the biggest problems with centralized exchanges is that it provides hackers with a single point of failure that can facilitate theft. In 2019, for example, the world's largest cryptocurrency exchange Binance suffered a hack in which thieves stole $40 million worth of bitcoin from wallets on the exchange.
You can protect yourself and your investment by storing your tokens in a private wallet. A crypto wallet is a device or application that keeps your tokens safe while you leave your exchange account. For the highest level of security possible, you want to invest in a hardware wallet. If you're looking for a free option, a software wallet may work for you.
Step 3: Make your purchase
After you've set up your wallet, you're ready to make your first purchase on your broker's exchange. Here are the basic steps you will go through when placing your order:
- Step 1: Decide how many UNIs you want to buy. You can take a look at the current market price first.
- Step 2: Place an order. After you decide how many tokens you want to buy, place an order through your broker's platform. Depending on the broker you choose, you may need to specify what type of order you want to place.
- Step 3: Wait for your broker to complete your order. After submitting your order, you can sit back and relax. Your broker will fill your order as soon as possible according to your specifications. If your broker is unable to fill your order, the broker may leave it open indefinitely or cancel it at the end of the trading day. You may receive an email notification when your order is filled or cancelled.
You do not need to actively trade your Uniswap tokens to benefit from this project. If you want to participate as a Uniswap liquidity provider, you can also earn a percentage of the swap fees each time a user participates in the Uniswap exchange. This can make the token more valuable as more and more smaller projects are added to the exchange.
Trade or sell your cryptocurrency
After you complete your order, you will see your tokens in your exchange wallet. From here, you need to decide how you want to use your tokens. If you think Uniswap will appreciate over the course of weeks, months, or years, you should transfer your tokens to an over-the-counter wallet as soon as possible. This limits the possibility of a hack and helps to better protect your investment.
If you believe that Uniswap tokens have more value in the context of short-term price movements, you may want to head trade or day trade your tokens. With this strategy, you benefit from a series of short-term price movements, convert your money into a stable coin when it is most beneficial for you, and cash out excess tokens as profits.
Take note, that If you decide to become a short-term trader, you need a responsive and intuitive platform.