Crypto Academy Week 4: All About the Ethereum Blockchain – by @gbenga

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Hi everyone, welcome to this week’s awesome lesson. In this homework post, I will be solving this week’s task when it comes to the Ethereum blockchain and also giving my opinion and knowledge about a project built on the Ethereum blockchain and what they are all about. I have to say, this week 4 topic by the Steemit crypto professor @gbenga was a whole lot of fun and a very important topic as far as blockchain is concerned and explaining the important aspects of the Ethereum blockchain. Based on the main task for this post, the project built on Ethereum I will be discussing is uniswap.

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So What is Uniswap and What is it all About?

I’m pretty sure anyone who is in the blockchain and crypto space must have come across or heard about Uniswap. It was the talk of the town these past few months. Uniswap doesn’t need any introduction as far as DeFi is concerned as it still remains one of the heavyweights in the DeFi space at the moment. It took over the scene since it was launched and since then, it has become one of the most used DeFi protocols at the moment. A lot of people received the amazing UNI token airdrop made by uniswap which went to become a mouthwatering airdrop because of the value the UNI token turned out to be.

Uniswap is basically a protocol for exchange of tokens in a decentralized way. In simple terms, it is a DeFi or decentralized crypto exchange on the Ethereum blockchain. One of the amazing things about Uniswap is that it is an open source protocol, which means that anyone anywhere can interact with the protocol. The Uniswap protocol is fully decentralized, deploys smart contracts and is built on the concept of liquidity pools and automated market makers. Uniswap has its own token known as UNI token.

What are the Main Benefits of Uniswap?

• Fully decentralized exchange or DEX
  In simple terms, Uniswap is a decentralized exchange built on the Ethereum blockchain used for swapping between Ethereum-based tokens. The main benefit of uniswap is simply that it is fully decentralized, meaning that it is not controlled by any central authority and instead it is decentralized.

• Open source
  This is another very important aspect of uniswap and that is it is an open source decentralized exchange protocol. This means that anyone can have access to the protocol and contribute to it as well.

• Permissionless access to financial services
  This is another benefit of uniswap. It is permissionless which means that users can have access to its financial services with security and immutability which fully aligns with the full decentralization of the ethereum blockchain.

The UNI Token

As always, most of the projects built on the Ethereum blockchain has their own token and uniswap isn’t an exception as it has its own token known as the UNI token. This token doesn’t need any introduction in the crypto space because it made a name for itself for its value since the airdrop was made months ago and it is still one of the top tokens out there, ranking in the top 10 on coinmarketcap at the moment.

Main Uses of the UNI Token

One of the main uses of the UNI token is for governance. This means that anyone who own the UNI token in cryptocurrency terms we call it holders of the UNI token, can participate in the governance, i.e, have influence and vote on decisions for the development of Uniswap. In addition, the holders can also fund liquidity mining pools, and other proposals as well.

Liquidity Pools

Liquidity pools on uniswap are simply pairs of Ethereum (ETH) and ERC-20 tokens which are swapped by users in a decentralized way. Example of popular liquidity pools are ETH and DAI, ETH and WBTC, ETH and USDT etc.

• Liquidity providers:
  These are users who add assets to these liquidity pools and in turn earn a proportion of the transaction fees for their contribution efforts. The good thing is that anyone can deposit their ETH tokens into the shared liquidity pools or LP for short and start earning trading fees as rewards for their contributions.

So How Does the Uniswap Protocol Work?

Like I mention above, anyone can partake in these liquidity pools by adding assets to the liquidity pools and start receiving a portion of the transaction fees. So how does the protocol work… users can start with any amount at t a 50/50 ratio or 50% ration between the two tokens. Everytime users trade on the uniswap decentralized exchange, the trader pays 0.3% fee which the goes into the liquidity pool and divided proportionally in relation to the amount each liquidity provider has added to the pool.

How is Price Determined on Uniswap?

Uniswap has proven to be a great DEX for users of DeFi because of its amazing features, ease of use and full decentralization. Price determination on uniswap is a top that not many uniswap users know about… because of the simplicity of the uniswap interface and how the protocol works, the price determination on uniswap works a bit different from the way prices are determined on centralized exchanges.

Unlike the centralized exchanges that rely on what is known as order book and constant buyers and sellers to determine the price. The price on uniswap is basically determined by dividing the size of the two sides of the liquidity pool of the tokens.

Uniswap uses the equation: x * y = k.

X” and “y” simply means the quantity of the tokens available in the liquidity pool,
“k” simply means constant value

Looking at this, uniswap uses a method to achieve equilibrium between both tokens in addition to the demand and supply that is needed to determine the price. Let’s take for instance, if “user A” buys an ERC-20 token with Ethereum (ETH), then the supply of that token would decrease, the supply of Ethereum (ETH) would increase which causes the price of that ERC-20 token to increase. Also, if “user B” comes and sells that same ERC-20 token and receives Ethereum (ETH) in return, the supply of Ethereum (ETH) would decrease and the supply of that ERC-20 would increase… this causes the price of that ERC-20 token to decrease.

Cc:
@steemcurator01
@steemcurator02