Uniswap is a decentralized protocol that was developed for the swapping of DeFi tokens based on Ethereum. As the founders stated in their blog, they were totally thrilled by the possibilities provided by Ethereum, but also discontented by its 2 key problems:
- Etherum could only work with a ETH/ERC20 pair
- It could only work with a single liquidity provider.
With that in mind, they have created the Uniswap exchange with no order book on it, consequently, there are no buy/sell orders just like on any other Defi exchange. The platform doesn’t conduct matching of buyers and sellers to determine the price either. Instead, there is an equation at the core of the protocol that performs this task to execute trades. With the introduction of a price oracle functionality in Uniswap V2, the automatic computation of the Ethereum price has become more complicated and at the same time more accurate. The swap of tokens takes place through the automatic liquidity pools that back up each trading pair such as ETH/BAT, ETH/DAI, etc. As the interface is intuitive and clear, even beginning users can quickly learn how to use Uniswap. Liquidity pools operate through smart contracts, which enable exchange of tokens through liquidity reserves. The pools are created by platform users as they invest their funds and receive 0.3% for each transaction in the pool as a reward. The DEX is governed by the community with the help of UNI, the native token of the platform that was distributed to all users after the launch. It was also followed by a short liquidity mining program across its key pools.
Is Uniswap safe?
Though blockchain technology increases the efficiency of business processes, the cases of centralized exchanges being hacked are not completely rare. It is considered that decentralized exchanges such as those powered by Uniswap are safer as they don't offer custody services, so users remain in full control over the safety of their assets. Also, customers don’t have to provide their personal data to the network to start trading as they do on centralized cryptocurrency exchanges. Thus, they are protected from the loss of identity and data theft. At the same time, traders and investors should be very cautious when they trade cryptocurrencies and tokenized assets as scammers also flock to this market looking for victims.
Uniswap V2 vs V3
In May 2021, the project released a big update Uniswap V3 with concentrated liquidity as a flagship feature. With this hew option, liquidity providers get higher control over price ranges and get fairer compensation for the risks they bear. In the blog post announcing the update, the Uniswap team promises up to 4000x capital efficiency compared to V2. Another big improvement of the new version is non-fungible liquidity. Each position is now represented in the form of a unique token which adds one more great use-case for this technology.
How to avoid Uniswap scams?
Uniswap is an open market for all users who wish to list their coins on the platform. Though the lack of the KYC procedure accelerates business processes, it makes customers more vulnerable to scams. Scammers can also list their fake tokens on a Uniswap-based exchange, so clients should be very attentive not to fall for these tricks. And the complaints about this problem are aplenty. Sometimes it can be very hard to figure out if a given token is authentic or not due to the decentralized structure of the asset. 
Not a real BADGER: CoinMarketCap warns about illicit tokens listed on Uniswap It is a common situation for scammers to leverage pre-existing branding to attract more victims. Inexperienced users can purchase fake tokens and lose their capital in this way. Also, at Uniswap, there are many scam projects issuing their tokens that don’t have any value. Therefore, a professional ICO review is required before investing in the project.
Smart contracts – costs
Smart contracts are the key technology powering Uniswap as they represent a self-executed code that validates automatically the conditions for a successful transaction. This is an excellent tool that is used to execute the agreement between the parties without applying to the third party. Transactions on smart contracts are processed by the blockchain core ledger and recorded on a public database. The use of smart contracts can lift the company to another level, but their technological complexity prevents their integration to small and medium-sized firms. One of the topical issues in the way of their integration is the expensiveness of smart contracts. Apart from huge expenses on their development, auditing and testing are also rather expensive. Also, the deployment of smart contracts on the main net drives the costs. While this is not a big deal for large enterprises, it may become a heavy burden for smaller companies. Therefore, if you launch a smart contract on Uniswap, affordable smart contracts audits are highly demanded. The resources like Tokenguard that performs automatic checks of the code are irreplaceable in such cases.
