The bottom line:
With last year’s release of Uniswap V3, the newest protocol for governing smart contracts, Uniswap has put itself in a strong position to not only maintain relevance but continue to elevate above many of its contemporaries.
Best for fast crypto swaps
On Uniswap's website
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The market share for decentralized exchanges (DEX) has dropped 25% since hitting an all-time high in June 2021. Despite this, public interest in decentralized exchanges is growing due to the general focus on transparency with investors and the ability for users to maintain control over their assets.
While there are tons of options to choose from, the Uniswap platform has consistently landed at the top of the DEX totem pole. It was one of the first to properly utilize automated money makers (AMM), which are the systems that allow these decentralized exchanges to function properly. Without these AMMs, we wouldn’t be able to make trades directly with other potential users. Rather, it would require someone to be in the middle, effectively “centralizing” it.
The first version of the Uniswap protocol was more of a proof of concept than anything, however. It didn’t allow for any type of exchange — other than directly from an Ethereum coin (ETH) to a token that followed the Ethereum blockchain’s coin protocol, ERC-20. But the version 2 protocol, released in May of 2020, allowed for a more dynamic environment in which an ERC-20 token could be exchanged with any other token. This launched Uniswap into the forefront of the DEX game, and the platform has continually met or exceeded expectations with its third protocol, released in May of 2021.
Uniswap pros and cons
- No verification requirements, so you can swap in no time flat
- Easier new token access due to the decentralized nature of this exchange
- V3 allows for users to earn at different fee ranges via liquidity pools
- Low flat-rate trading fees across the board
- User retains custody of their tokens
- Can't move fiat on or off the platform
- Fake coins are a risk on this platform
- The technical aspects of the platform may be confusing to some users
- Uniswap can opt to implement an extra fee rate in the future
- Higher-than-average gas fees
Easy access to new tokens
It’s not uncommon for exchanges to require new coins to go through a laborious vetting process. While this can help to cut down on the risk of investing in fake or dubious tokens, it also means that users have to wait to swap their tokens for coins that are still in the early phases of their roll-out. But that’s not the case with Uniswap.
Rather than tokens and coins being subject to lengthy vetting, new projects can be listed directly to Uniswap. This lets users swap to newer tokens earlier, before they have been listed on centralized exchanges.
No Know Your Customer requirements
Because Uniswap is decentralized, there are no Know Your Customer, or KYC, requirements to contend with. That means you don’t have to go through a validation process to prove who you are to the exchange — which makes it faster and easier to get started. In addition, you won’t have to turn over your personal information to a third party, which is preferable for many crypto users.
The protocol is unique to Uniswap — for now
Uniswap gets sole rights to their V3 protocol until 2023 when it’s released under the GNU General Public License (GPL), which was created to guarantee to users that the software licensed was free (as in freedom) to copy, modify, and distribute.
In the meantime, other companies can use this newer version of the protocol by integrating the functionality that’s publicly available on the blockchain. This license restricts the assimilation of the code into commercial software by competitors. This is to deter the “vampire attacks” that have occurred as a result of the version 2 protocol being immediately GPL licensed.
On the other hand, competitors have taken the source code and modified it slightly in order to siphon off users from Uniswap by offering larger incentives.
Option to earn rewards
If you want to earn for providing liquidity to an exchange, users have that option with Uniswap V3 by offering their tokens to liquidity pools. That’s the biggest benefit of using Uniswap V3 rather than V2 — it allows for multiple tiers of fees in their liquidity pools.
These liquidity pools are what keep trades between different types of tokens moving quickly. If a user is looking to trade four tokens for another token, these liquidity pools let that trade be immediately available rather than waiting for someone else to directly take the user up on that exchange.
In V2 of Uniswap, users who provide the liquidity to these pools are given a static amount of kickback per-trade that happens in this pool as incentive for taking any risk associated with providing that liquidity. This works fine for a large portion of coin combinations and keeps the whole process fairly simple.
However, it is not ideal in some relatively extreme environments, such as pools in which the difference in value of the coins are nearly static or are subject to extreme fluctuations. And V3 fixes this, and provides tiered levels of incentive, with liquidity providers in volatile environments receiving higher rewards — and vice versa.
Community governance is a focus
One of the most unique traits that Uniswap offers to users is the community governance system. Because of the focus on community ownership and integration, it allows UNI token holders — which is the exchange-specific token — to vote on public proposals in a robust and relatively non-complex system of forum posts and “temperature checks” — which gauge the community’s will to deviate from the status-quo.
All changes are made “on-chain” as well, which ratify these changes into immutability, never changing.
Scams may be an issue
While users can access new coins earlier than they can with many other platforms, the reality is that the decentralized nature of Uniswap, which does not require heavy vetting of new coins, can open the door to users investing in scams and fake or rug-pull projects. This is a bigger risk for users who want to purchase tokens very early — and well before they’ve become mainstream — in order to maximize profits, but is a risk nonetheless.
No option to move fiat currency on or off the platform
Uniswap is a DEX, meaning that by the very nature of the platform you can't move fiat currency (cold, hard cash) on or off of the exchange. If you want to do that, Uniswap isn't the platform for you. You'll need to use a centralized exchange and go through the laborious verification process instead.
Gas prices can be cost-prohibitive
Uniswap runs on the Ethereum blockchain, and as such, the gas fees for transactions can be extremely costly — especially if the network is congested. It’s not uncommon for gas fees to increase month over month, and a prime example occurred in May 2022, when the gas prices increased to 65.65 gwei on average compared to 54.67 gwei the month prior.
Confusing technical differences
When it comes to DEXs, these exchanges require technical knowledge that can be tough to navigate for new crypto users. That alone can be immediately off-putting to any average person. For example, in order to use these exchanges, you need a wallet that can interact with smart contracts, which can be confusing to set up and use. You also need to be comfortable using the DEX site and connecting your wallet, and you’ll need to actually execute on-chain transactions as well.
A departure from the fee-free aspect
While earlier versions of Uniswap were fee-free, that isn’t the case with V3. The protocol isn’t widely available to competitors, either, as Uniswap will not be available as open source until 2023. That means other platforms can’t use and improve upon it yet. It also means that users cannot yet get the same technology in a fee-free platform.
The departure from the “free” aspect with V3 — which occurred when Uniswap temporarily locked V3 behind the non-GPL license — can be also viewed as a departure from the core on which Uniswap was built. When this project surfaced, it was meant to be open source and available to others who wanted to take advantage of the protocol.
What Uniswap is best for
- Users who are looking for a no-frills DEX to swap their ERC-20 tokens on one of the 4 supported blockchains may find this platform to be a good fit.
- Those who enjoy the idea of community governance and would like to take part in the discussion and development decisions of a massively successful project may find this exchange to be an option worth considering.
- Users who want to earn via liquidity pools have the option to do so with this exchange, provided that they want to earn with the specific pool options offered by Uniswap.
Key features of Uniswap
This section should note any features that make it stand out or features that could be beneficial to readers. Write a short intro followed by a list of key features worth noting. For example:
- Swap features: Uniswap can be used to easily swap between Ethereum and other ERC-20 tokens. Users can also purchase Uniswap’s governance token, UNI, on this platform.
- Collective governance: Uniswap’s governance allows for collective control and decision-making, which can be a big draw for certain types of users.
- Liquidity pools: Uniswap also offers a pool that users can utilize to earn rewards by providing liquidity to the platform.
- Self-custodial: Rather than giving up custody of your tokens to an exchange, users retain custody of their tokens — which reduces the risk to their tokens from hacking, platform bankruptcy, and other related issues.
- Easy coin access: Rather than tokens and coins being subject to a long vetting process, projects can be listed directly to Uniswap. This lets users swap to newer tokens earlier, before they have been listed on centralized exchanges.
Cryptos listed on Uniswap
- Hundreds of token options: The emphasis is on ERC-20 tokens, but there are hundreds of options listed on the Uniswap site, including stablecoins and Uniswap’s governance token, UNI.
- Wide range of pools: There are over 50 top pools listed on Uniswap’s site, but there may be even more options available to users who want to earn on their tokens.
Fees for using Uniswap
Prior to V3, Uniswap’s focus was on a fee-free structure, but that changed with the new protocol rollout. That said, the fees associated with swapping and pooling your tokens on V3 are very low compared to what other large exchanges typically charge.
|Swapping||0.01% (v3 governance); 0.05% (stable/stable pairs like USDC/USDT); 0.3% (stable/blue chip pairs like USDC/ETH); 1% (wild pairs like ETH/DOGE)|
Alternatives to consider
SushiSwap: Good for users who want more functionality
As one of Uniswap’s biggest competitors, SushiSwap utilizes the same protocol as Uniswap but also offers additional opportunities to earn rewards and widens the scope to include liquidity mining, lending, and margin trading.
PancakeSwap: Good for users who want lower gas fees
The gas fees for ETH-related transactions can be extremely costly — especially when the network is congested. But users who want lower gas fees may find PancakeSwap to be a good alternative since it runs on the scalable Binance Smart Chain (BSC), which has gas fees that typically average just pennies per transaction.
1inch: Good for users who want access to multiple blockchains
Uniswap is primarily limited to ERC-20 coins, which can be limiting for users who want more from the platform. A good alternative for these users may be 1inch, which offers access to tokens on multiple blockchains on one platform.
Is Uniswap right for you?
Users who want access to a platform that offers a wide range of token options, pools, and low transaction fees — even with V3 — may want to consider this platform. It’s the top choice in platforms for a reason, and the functionality is simple enough for even the newest users.
That said, it should be emphasized that only Ethereum-based assets are currently supported in the current version. While it is possible to wrap cryptocurrencies like Bitcoin (wBTC) and trade it via Uniswap, at this point in time other protocols are not supported via Uniswap markets.
Final thoughts on Uniswap
In a world where hurdles and barriers to entry continue to limit adoption, Uniswap has succeeded in providing a much-needed DEX experience that traders had long been searching for. It has become the largest DEX as measured by several metrics, with developers continuing to innovate and improve the user experience.
Frequently asked questions
Is my crypto safe when using Uniswap?
What is Uniswap used for?