Steemit Crypto Academy Week 4 // Insight on the Etherum blockchain // Submitted to @gbenga
Happy new month and happy new week.Lectures keeps getting interesting @gbenga. Weldone.
The world of Etherum is so broad as some many project today depends on it. It is the second largest market of cryptocurrency when described by capitalization.
Week 4 Task
Explain in full a project built on the Ethereum Blockchain
Etherum has currently above 224 DeFi projects listed and 212 of them built on Ethereum, sounds great, right?
The size of the Etherum blockchain isnt stagnant as it increases with demand and of all the wonderful project on its blockchain, I will be dwelling on Uniswap.
What is Uniswap
Uniswap can be described as automated liquidity protocol which powered by a constant product formula and further implemented in a system of a non-degradable smart contract mounted on the Etherum blockchain.
A liquidity pool which is made up of two reserves of Erc-20 tokens is being managed by a pair of Uniswap smart contract.
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It can also be said that Uniswap is a leading decentralized crypto exchange built on the Ethereum Blockchain. Based on our lectures on centralization, we could say that Uniswap are unique and fully decentralized as it is not owned or manage by any third party,so it quite safe and uses a type of new system called the automated Liquidity Protocol. Anyone at can become a liquidity provider on Uniswap and in return, you can get extra token.
Uniswap, built on Ethereum Blockchain allow traders to swap coins without trusting their coin to anyone. Their operation is assisted by unicorns.
The platform was built in 2018 by Hayden Adams, though the technology behind it was first conceded by the Etherum Co-Founder Vitalik Buterin.
How does it Operate
It is outstanding in the sense that it has no other book but works with a design called Constant Product Market Marker another model called Automated Market Marker. This automated Market Marker are able to hold liquidity reserves that trades can trade against,which are usually funded by liquidity provides. As earlier stated anyone can provide liquidity on Uniswap.
It runs on two smart contracts, namely the Exchange and Factory Contract. Smart contract are codes which are designed to carry out a specific task when certain conditions are reached.
The Factory smart contract adds new tokens to the exchange while the exchange smart contract facilitates all swaps with the exchange.
Liquidity on Uniswap
An automated protocol is used to solve the problem encounter by Uniswap on its liquidity. It works by encouraging people to become liquidity providers (LP). Users pool their money together to create a fund which is used to execute all trade carried out on the exchange. Various token have their various pool and users are encourage to contribute to these LP so that trading can be swift.
Having this system LP provider does not require a buy or seller to wait, having a known price, an order is place having in mind that there is enough liquidity to execute the trade. In exchange for providing Liquidity, token that represents your staked contributed amount are distributed.
How prices are determined on Uniswap Exchange
As earlier stated, Uniswap uses the Automated Marker System. This forms an integral aspect of the exchange as the need for order book has being completely ruled out. Instead, the there is a mathematical equation employed for adjusting prices based on demand and supply. The size of the LP also determine how the price of token will vary during trading.
The equation for working out the price of each token is x*y=k, where the amount of token A is x and the amount of token B is y. K is a constant value, aka a number that doesn’t change.
Arbitrage Traders
These trader are responsible for finding price variances across multiple exchanges and use them to secure a profit. They have been found to be very useful on the Uniswap platform.
For an example,
For example, if bitcoin was trading on Kraken for $35,500 and Binance at $35,450, you could buy bitcoin on Binance and sell it on Kraken to secure an easy profit. If done with large volumes it’s possible to bank a considerable profit with relatively low risk.
These traders find tokens trading below and above market prices, they take care of the imbalances that may arise from trades and sell token accordingly.
Very important point to note is this:
This harmonious relationship between the automated market maker system and arbitrage traders is what keeps Uniswap token prices in line with the rest of the market. The maintain balance in trades in order to aviod loss.
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ADVANTAGES of using Uniswap
Uniswap is fully decentralized and note controlled, operated or manages by a single entity.
It is completely open source, with this no one can copy the codes in order to creates its own Decentralized exchanges. On Uniswap you can list token for free which is not possible with the centralized exchanges as they are always profit driven.
Since it is decentralized, uses are in full possession of funds, their keys, etc. When compared with centralized exchanges.
Using the Automated Market Marker, prices are determined, it cancels the need for an order book where prices are adjusted.
Disadvantages of using Uniswap
The main disadvantage with Uniswap is it s liquidity problems,which refers to the depth and amount of orders avialble in the order books at every given time. It means that trades will have to wait or may not be able to fill there buy and sell orders.
Uniswap gas fees
In Uniswap exchange, a flat rate of 0.3% is charged on every trade which is directly sent to the liquidity reserves.
There has been a hike in gas fees on the Etherum network, this has affectly virtually most of the project builr on the Etherum network. As the number of transaction grows, so does the amount of gas fees.
For this reason, switching to other projects might just be part of the solution on high gas fees.
Uniswap market
According to coin Geko, Uniswap ranks no 13 in the world of cryptocurrency according to market capitalization.
Uniswap Token
It was created in September 2020. Uniswap token is the governance token for the uniswap exchange. It accords holders the right to vote, on any new project and development on the exchange.
How to get started on Unisawp
Getting started on the Uniswap isn't a big deal, first you need an ERC-20 supported wallet, such as trust wallets, metamask, Coinbase wallet, etc.
Once you have this wallet, you are good to go. Dapps is already added to the wallet, if it was added, you can possibly still add it.
Trade on it, pay for gas fees as it's called on Etherum platform, you can possibly set the speed at which you want your transaction to go. It can either be slow which is cheap, medium or fast which is the most expensive.
In conclusion, Uniswap is a good project but gas fees are considerably high because it is built on the Ethereum blockchain.