Uniswap (6)

....AMM → Automated Market Makers.

DeFi means DEcentralized Fnance.

In this type, there's no central authority but a peer-to-contract mode of conducting financial activites.

In fact, if you want to check Uniswap out, then you must have prior knowledge of web3 and trading in Cexs.

As a decentralized exchange, all transactions done and trades taken is between you and the smart contract encoded already.

For this reason, there's no censorship in Uniswap and other dexs alike.

No need for KYC (know your customer)

Very low fees and no need for taxes

Also, there's no need to deposit funds into the exchange as you only need to connect your wallet to the exchange.

Without your permission, Uniswap cannot withdraw from your wallet , and for each time you want to trade or make any deposit, your have to permit the transaction in your non-custodial wallet.

We'll discuss a little bit of the technicals of Uniswap.

LIQUIDITY

For one to trade, there must be liquidity. Without liquidity, trading will be totally impossible.

What's liquidity?

Just think of it as that which allows you to buy low and sell high ...or sell high and buy low.

...So for LIQUIDITY to be available, there must be people willing to buy at a particular price or willing to sell at a particular price.

Now, you should ask yourself, "how's Uniswap thriving?"

"How did they manage to survive till now?"

From my little knowledge, mass adoption has not really occured because a lot of people are ignorant wile some are scared.

This is where LPs come into the picture. As we see the need for LPs, we can't neglect the role of AMM in our dear Dex.

LPs providers the liquidity needed in Uniswap. So they get tokens and they deposit it into liquidity pools.

.... Of course, they're incentivised for their services.

So, transactions fees paid in the dex foes to the liquidity providers.

AMM takes the place of *order books* in our dexs.

Order books are used in Cexs to record all buy and sells orders and they're updated I'm real time.

This also helps to determine the prices of assets in Cexs.

It is quite different in dexs.

There's no need for an order book, but an AMM is utilised.

This AMM is made up of a mathematical expression that is used to determine the prices value of tokens on Uniswap.

Uniswap's AMM is known as Constant product market maker model

It's expressed mathematically this way, x*y=k

Say k is the constant.

That means, there's a given amount of tokens constantly in the liquidity pool

Imagine that Uniswap's liquidity pool with 100,000 tokens as the constant

So,

10 DAI * 10,000 ARBeth = 100,000 hypothetical btw

If I want to buy 10,000 ARBETH tokens in Uniswap, I will pay 10 DAI.

If I want to buy 900 ARBETH, THEN

x * 900 ARBETH = 100,000

The price of 1 ARBeth in DAI will be determined such that, the product of DAI tokens and ARBeth tokens gives the constant.

Hence,

z = 100,000 ÷ 900

That would be giving us 111.11 DAI

That is to say that, we will be paying about 111.11 DAI for 900 ARBeth.

If this doesn't make much sense to you, check this video.

Stats about the $UNI token

Total value locked (TVL) → $5,201,703,563

Circulating supply → 600,034,295 UNI

Total supply → 1,000,000,000 UNI

Max. supply (not given)

Fully diluted market cap → $7,812,954,544