Uniswap is the world's largest decentralized exchange (DEX), with more than $1.4 trillion in all time volume and over 140 million trades completed. It is fueled by UNI, the native, governance token of Uniswap that token holders can use to either vote on or submit new governance proposals. UNI holders also have ownership over the Uniswap treasury and can receive income based on the transaction fees generated by the protocol. UNI has the potential to be a valuable investment option, as the entire ecosystem of Uniswap utilizes it as the primary token.
Investing in cryptocurrencies, decentralized finance (DeFi), and other initial coin offerings (ICOs) is highly risky and speculative, and the markets can be extremely volatile. Consult with a qualified professional before making any financial decisions. This article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies nor can the accuracy or timeliness of the information be guaranteed.
What Is Uniswap?
Digital currencies or cryptocurrencies are digital assets that can be used for transactions without the need for a middleman, like a bank. They operate on a blockchain network and are secured by cryptography. Digital currencies have become popular lately due to their global accessibility, low transaction fees, and potential for anonymity.
A well-known cryptocurrency is UNI, which is the native token of the most popular DEX, Uniswap. Launched in September 2020, Uniswap is a platform that allows users to trade different cryptocurrencies without the need for an intermediary to oversee the transactions.
Uniswap has several distinct features that separate it from other DEXs. One of them is its Automated Market Maker (also referred to as Constant Function Market Maker), which is a mathematical algorithm that determines the price of different cryptocurrencies. Additionally, UNI holders have governance rights over Uniswap, allowing them to vote on key decisions affecting the platform.
Uniswap has had a series of significant developments in the past year. In October 2022, Uniswap Labs, the company behind Uniswap, announced a successful Series B funding round, raising $165 million and valuing the company at an impressive $1.66 billion. A month later, the platform overtook Coinbase as the second largest exchange for trading Ethereum (ETH) based on daily trading volume.
Then, in March 2023, Uniswap Labs announced the launch of its own self-custody wallet. However, Apple has refused to add the wallet to its App Store, due to what it calls “an unresolved issue” with the app.
How to Buy Uniswap
Crypto exchanges allow you to buy and sell cryptocurrencies, like Bitcoin (BTC), Ethereum, Dogecoin (DOGE), and UNI, among others. Similar to traditional online brokers like E*TRADE or Interactive Brokers, these cryptocurrency exchanges enable users to buy and sell digital currencies.
Here are the steps required to buy UNI on a cryptocurrency exchange:
Step 1: Sign up for a crypto exchange.
Sign up for a reputable cryptocurrency exchange, such as Kraken, Coinbase, or Binance, and create an account. During this step, you’ll be required to verify your identity via a government-issued ID.
Step 2: Link a payment method.
The next step is to link a payment method to your account. This allows you to add funds in order to purchase UNI tokens. Different exchanges may accept different payment methods; it's important that you check what is accepted by the exchange in your jurisdiction.
Step 3: Find the UNI token, check the current market price, and buy.
After funding your account, the next step is to search for the UNI token, check its current market price, and then make the purchase. Typically, it takes only a few minutes to complete the order. Once it’s completed, you can transfer your UNI tokens to other cryptocurrency wallets.
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Alternative Ways to Buy Uniswap
Another way to buy UNI tokens is through peer-to-peer (P2P) trading platforms that allow buyers and sellers to connect directly with each other and trade cryptocurrencies without the need for a centralized crypto exchange. These P2P platforms act as an escrow to ensure the safety of the trade for both parties.
One other way to buy UNI or other cryptocurrencies is through decentralized exchanges (DEXs) like Uniswap itself. These platforms allow you to trade your cryptocurrency for the preferred one. To buy UNI, simply connect your wallet with a DEX, and swap your crypto with UNI.
Unlike traditional brokerage firms, cryptocurrency exchanges are not members of the Securities Investor Protection Corp. (SIPC). Therefore, unless user terms specify otherwise, investors with cryptocurrency assets commingled on a custodial cryptocurrency exchange could potentially lose their funds as unsecured creditors.
What You Need to Open a Cryptocurrency Exchange Account
In order to open an account on a centralized crypto exchange like Kraken or Coinbase, you need to meet certain requirements. Let’s take a look at what you need.
Personal Information
To complete the onboarding process for crypto exchanges, you need to provide the following personal information and documentation to help these platforms complete the “Know Your Customer (KYC)” process:
- Full Name
- Email address or mobile number
- Home address
- Proof of address
- Government-issued ID
Minimum Deposits
The minimum amount you are required to deposit varies depending on the exchange and the currency you are using. It's possible to start buying or trading with just a small amount of fiat currency such as $10. Some exchanges, like Robinhood and Coinbase, will allow you to begin with just $1.
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Types of Cryptocurrency Exchanges
Centralized Exchanges (CEXs)
Centralized exchanges (CEXs) are online platforms that are controlled by a single entity or organization, which is responsible for managing the exchange's servers, security, and user accounts. They also often allow users to buy their preferred crypto with fiat currencies.
They are the most commonly used platforms for buying and selling cryptocurrencies as they are easier to use than decentralized or hybrid exchanges.
Decentralized Exchanges (DEXs)
Decentralized exchanges (DEXs) operate on a decentralized blockchain network, without the need for an intermediary to manage security, servers, and users. Instead, DEXs use smart contracts to automate the process of trading cryptocurrencies. This also means that users are always in control of their funds. While DEXs offer advantages over CEXs, like increased security, privacy, and self-custody, they have some disadvantages, such as poor user interface (UI) experience and low liquidity.
Hybrid Exchanges
Hybrid exchanges combine elements of both CEXs and DEXs. They typically use a centralized order book and matching engine, but also offer self-custody to their users.
Best Cryptocurrency Exchanges
| Company | Trading Fees | Minimum Deposit or Purchase | Trade Limits |
|---|---|---|---|
| Coinbase | 0.00% to 0.60% | $1 | No |
| Kraken | 0.00% to 0.26% | $1 for instant buy | No |
| Uphold | 1.5%+ (spread-based depends on coin and market conditions) | $10 | No |
Factors to Consider When Opening a Cryptocurrency Exchange Account
There are several crucial factors to consider when opening a cryptocurrency exchange account, including:
Security: Security is paramount when selecting a crypto exchange. Ensure that you use an exchange with robust security measures in place and a long and strong track record of protecting users' funds and their personal information.
Fees: Fees have a significant impact on your trades. Therefore, it is important to consider the deposit and withdrawal fees of the exchange before you create an account.
Number and quality of supported cryptocurrencies: As you are looking to buy UNI, make sure the exchange you choose supports the asset. While popular exchanges offer multiple assets on a single platform, it's crucial that you also check for the liquidity of the asset you are trading.
Wallet quality/safety: The security of your wallet is as imperative as your funds. Make sure to choose an exchange that offers a secure wallet with multi-layer security measures and a strong reputation for security.
Storage and custody: To ensure your assets are protected against hacking or theft, check whether the exchange uses security measures like cold storage, two-factor authentication, third-party audits, or even insurance in some cases.
Centralized vs. decentralized: While CEXs are subject to stringent regulatory requirements and have high standards of security, they are a centralized point of failure. On the other hand, DEXs are less vulnerable to security breaches, but have poor UI and are not subject to regulatory standards.
In terms of protecting against events like FTX, it is crucial that users remain in control of their funds, even if they are using CEXs.
FAQs
How Does Uniswap Work?
Uniswap makes use of an automated market maker system (AMM) called Constant Function Market Maker through which users can trade against a liquidity pool instead of a traditional order book. The AMM uses a mathematical formula to ensure the price of each token is in proportion to the amount of liquidity in the pool.
Users can provide liquidity to the pool by depositing an equal value of two different tokens in exchange for rewards in the form of trading fees.
How Do I Use Uniswap?
You will need an Ethereum wallet like MetaMask or TrustWallet to use Uniswap. Here is how to use Uniswap:
- Connect your wallet on the Uniswap website.
- Select the tokens you want to trade.
- Enter the amount of the token you want to trade.
- Confirm the trade in your wallet.
- Once the transaction is confirmed, your trade will be complete.
How Can I Earn with Uniswap?
There are a few ways to potentially earn with Uniswap:
- Provide liquidity: Users can provide liquidity to the pools in exchange for rewards in the form of trading fees.
- Trade: Users can earn from arbitrage opportunities available on Uniswap, as it uses an AMM to set the price of tokens based on their ratio in the liquidity pool. This creates opportunities for traders to buy and sell tokens at different prices on different exchanges.
- Staking: Some platforms allow users to stake UNI tokens and earn staking rewards in the form of native tokens.
It's important to remember that crypto assets are high-risk investments. Therefore, conducting thorough research is essential before making the decision to add Uniswap to your crypto portfolio.
