Uniswap uni

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Collective Shift Analysis

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Uniswap Summary

Uniswap is a decentralised exchange (DEX) aiming to be the best place to trade any cryptocurrency in a non-custodial way.

Each Uniswap smart contract, or pair, manages a liquidity pool made up of reserves of two ERC-20 tokens in equal amounts. Anyone can become an LP for a pool by depositing an equivalent value of two ERC-20 tokens in return for liquidity pool tokens. These tokens track pro-rata LP shares of the total reserves and are redeemable for the underlying assets at any time.

Built by Universal Navigation Inc. (Uniswap Labsthe Team), Uniswap exists to “obviate the need for trusted intermediaries, prioritising decentralisation, censorship resistance, and security.” It was initially available on Ethereum mainnet before expanding to other blockchains such as Arbitrum, Optimism and Avalanche.

There are various areas of ‘Uniswap’ that are worth highlighting as it can be a common source of confusion.

  • Uniswap Labs: The U.S.-based company that was a major contributor to the Uniswap protocol and now focuses on building products (e.g. Uniswap Wallet) that support the Uniswap ecosystem.
  • The Uniswap protocol: A suite of persistent, non-upgradable smart contracts that together create an automated market maker, a protocol that facilitates peer-to-peer market-making and swapping of cryptocurrencies.
  • The Uniswap interface: A web interface allowing easy interaction with the Uniswap protocol. The interface is only one of many ways one may interact with the Uniswap protocol.
  • Uniswap governance: A governance system for governing the Uniswap protocol, enabled by the UNI token.
  • Uniswap Foundation (UF): A non-profit organisation that provides grant funding to contributors. It was founded in 2022 with funding approved by the DAO.
  • UniswapX: An aggregation protocol that sources liquidity from various onchain and offchain sources. (Whitepaper)

Founded in Nov. 2018, the Uniswap protocol lets liquidity providers (LPs) deposit cryptocurrencies into liquidity pools and provide the underlying capital for swaps to occur. LPs earn fees on any swap that occurs in their position’s range.

How does the Uniswap protocol make money? A protocol fee exists but is set to 0% by default. UNI governance can turn on protocol fees per-pool basis and set between 10% and 25% of LP fees.

UNI Token Utility

The Uniswap token (UNI) is an ERC-20 token that was announced in Sep. 2020, with 15% of the total supply airdropped to historical LPs, users as well as Unisock holders and redeemers prior users. UNI’s distribution is as follows: community (60%), the Team (21.27%), investors (18.04%) and advisors (0.69%).

Upon launch, a total supply of 1 billion UNI was minted, with this supply becoming accessible (i.e. entering circulation) over a four-year period. After this period, the supply of UNI will inflate by 2% per year in perpetuity—although the Uniswap community could vote to change this.

UNI holders manage the Uniswap protocol. UNI holders can vote on proposals or craft and introduce proposals to take actions that include allocating community treasury funds, making license exemptions, and promoting protocol development and adoption.

The most significant token utility rests with the potential to turn on the ‘fee switch’ so that the Uniswap protocol can start generating revenue.