Cryptocurrency is the latest technological innovation that is actually living up to the hype. This technology started out as something not so serious, but it is now the only thing people can talk about. It has given birth to so many other technologies that support and fuel its growth even further. Crytocurrency trades and transactions are enabled by different other protocols one of them being Uniswap bot. Uniswap protocol was among the first decentralized crypto exchange (DEX) to make an automated liquidity protocol for the purposes of facilitating trades.
What Is Uniswap?
With all that talk, I am sure that you are asking yourself what Uniswap is. Well, this is an open-source software protocol that is built on the Ethereum blockchain. With this software, investors are able to make automated cryptocurrency trades. This protocol eliminates the need for intermediaries when buyers and sellers are engaged in trading cryprocurrencies. This is achieved through the use of automated liquidity protocol as opposed to the standard order-book structure.
Automated liquidity pools come with certain advantages such as solving the liquidity problem that is often common on centralized exchanges. With centralized exchanges, in order for trades to occur, there must be sufficient volume to cater for the needs of sellers and buyers. Uniswap protocol incentivizes users to pool their money in a fund so that any trader can draw from the pool to complete whatever trade they may have. Each token that is listed and which traders can buy and sell usually has its own liquidity pool. This way, traders can buy any type of crypto they like. The prices of the token that are sold and bought are usually determined by smart contracts.
When you choose to pool your money in the central fund where other traders/users pool their money, you are rewarded with tokens. You can then redeem the tokens from the fees that is charged on transactions that users encounter when trading crypto in that specific pool. The fact that Uniswap is open-source means that anyone anywhere in the world is free to create a decentralized exchange using their code.
Why decentralized trading matters for crypto
At the moment, most of the cryptocurrencies you will encounter are still traded on centralized exchanges. Good examples of cyrptocurrencies that are still traded on centralized exchanges are Coinbase and Binance. The company that owns the platform is the ones that usually run centralized exchanges. A platform is kind of a central authority that depends on traditional order book system to trade. In order for users to exchange crypto, they are required to place their funds under the control of the company that controls the platform. This can’t be good because it also requires one to hand over their private keys and this is where decentralization comes in. With decentralized exchanges, the crypto that people exchange is not controlled by some central authority such as a government, bank, or any other central institution. The kind of autonomy that decentralized exchanges offer was and should remain as the basis of cryptocurrency.