Defi or decentralized finance is a service that enables users to lend, borrow and earn interest. Many investors consider Defi as a promising alternative and that is why it is gaining popularity every day. It is one of the fastest-growing categories of crypto assets in the world.
The introduction of decentralized services into the crypto world resulted in the creation of several Defi apps. That, along with the rise of cryptocurrency exchange software development company enabled users access to financial services without needing third-party involvement. Uniswap is among those platforms whose purpose is to decentralize the token exchange process. Creating a DEX platform like Uniswap means providing people with a working alternative to existing centralized exchanges. Here, users can swap tokens with other users and participate in liquidity pools, with the latter earning them interest.
The rise and dominance of DEX platforms
However, these exchanges carried numerous risks such as security breaches, open to hacking, misusing information, the disappearance of funds, etc.
The emergence of blockchain provided a second avenue for crypto exchanges, now becoming decentralized in nature. As such, a central body overseeing the transactions became outdated. Meanwhile, the Ethereum blockchain created numerous P2P marketplaces and users sharing different crypto exchange software development methods. These platforms gave users total control over their assets and funds. The rise of blockchain also saw an increase in crypto exchange developers.
The DEX or decentralized exchanges could provide liquidity for fast trading. It did this through smart contracts developed on the Ethereum blockchain network. Uniswap, a famous DEX platform.
The working model of Uniswap
Presently, Uniswap remains one of the most widely used Defi exchanges available on the Ethereum network. Users and traders use the site to exchange their ERC-20 tokens. Here, users trade against a liquidity pool. The liquidity pool refers to a digital pot of money put together by other users. These users or liquidity providers offer their money, in exchange for a share of the pool fees and governance tokens.
While most DEX uses order books for transactions, Uniswap does not. So, how do exchanges take place on the platform? This is where the AMM or Automated Market Maker comes in. The AMMs are smart contracts with the purpose of matching two users. When a user wants to sell their cryptocurrency, the AMM matches them with a user who wants to buy it.
The Uniswap exchange also has its native token UNI. This token is distributed to members of the community. These members include investors, developers, and advisors. Anyone who owns a UNI token also has Defi voting rights. These token owners can participate in votes to change the platform’s protocols. The UNI token is held by four liquidity mining tools.
Four liquidity mining pools hold the UNI token. They are: ETH/USDC, ETH/DAI, ETH/USDT, and ETH/WBTC
Trading on Uniswap
Users must have a crypto wallet like MetaMask, Exodus and Electrum. With this wallet, the user can start trading or exchanging tokens on Uniswap. Users choose the token they want to trade then enter the amount to trade. The site then calculates the output token the user receives. After the swap, the interface displays a screen showing the value received, price impact, and the liquidity provider cost. The site will charge a nominal platform fee to handle exchanges between users.
The importance of liquidity pools in Uniswap
Uniswap’s liquidity pools are open to anyone with crypto assets. However, there is a catch: if the liquidity pool provider deposits two ERC-20 tokens, they must keep the same amount in their wallet. The providers get rewards and liquidity tokens by contributing to the liquidity pool. This stipulation makes sense as higher liquidity means faster transaction speeds and reduced chances of spillage. The site also provides a formula to explain the working of liquidity pools and how tokens gain their price.
How Uniswap is beneficial for users
Aside from providing a decentralized platform for token switching, Uniswap offers additional services to its users. They are:
- Because the crypto wallet supports their assets, the users have total custody and ownership of their funds.
- Traders and liquidity providers do not have to use KYC and ID verification on the platform.
- The platform also has flash swap- a feature that could drastically increase transaction speeds
- Meagre gas fees
Users can rely on a renowned cryptocurrency exchange software development company to develop their crypto exchange platform. They can then trade these tokens without relying on listing feeds. All that is required of users is to link their ERC-20 tokens of the same type on the platform.
How businesses benefit from using Uniswap?
The present crypto climate makes it possible for businesses to invest in DEX platform development and reap the benefits. A good cryptocurrency exchange software development company can help create a platform like Uniswap and help companies grow and increase their user engagement.
There are many trading activities and services the business can take part in. These include yield farming, staking, liquidity pool participation, trading and more. These activities will help the company earn significant returns in the future. As DEX platforms control most of the worldwide exchange market, a business on Uniswap can interact with a global audience and increase brand awareness.
In this attractive climate, investing and developing a crypto exchange software like Uniswap through a cryptocurrency exchange software development company will be a beneficial move. Additionally, the risks and costs required to build such an exchange platform vary between countries, so you could dramatically cut down on investment costs.
How to create a crypto exchange software like Uniswap
It is entirely possible to create a Defi open-source protocol, and it is one of the best business choices to make. Whether you are an organization or an entrepreneur, this process will put you on the fast track to earning a profit. With Uniswap gaining more exposure after the launch, it is the right time for anyone to launch a Defi protocol and start earning.
Though the process of developing and launch exchange software like Uniswap is possible, the idea of marketing it to a broader audience is an arduous task. Therefore, it is better to seek the assistance of a cryptocurrency exchange development company. These companies specialize in developing and launching such platforms and can guide you through the entire process from start to finish. Furthermore, you can also utilize their skilled marketing techniques to attract a broader audience. That way, your platform will have the maximum impact in the industry.