Among the many exchanges out there for crypto, Uniswap stands out as one of the largest names in the field. While not a centralized exchange like Coinbase or Kraken, Uniswap handles a lot of trade volume every day. In addition to this, Uniswap has its own token with some functionality in the application.
But, what are these functions? How easily can you get into holding Uniswap? Let’s take a look at what Uniswap is and how a payment processor like iDEAL can make buying Uniswap’s token easy.
What Is Uniswap coin?
Uniswap isn’t like most of the other cryptocurrencies that you see on the top 50 by market cap charts. While many coins and tokens on these lists represent the exchange of value within a blockchain, Uniswap is instead a token originally built on the Ethereum blockchain thanks to its ERC-20 token creation protocol.
However, it’s easy to get this token mixed up with the protocol of the same name. The Uniswap protocol is an automatic market maker (AMM) that manages and helps create markets between trading pairs of cryptocurrencies. By using smart contracts, coded agreements between two parties on the blockchain, Uniswap can automate the trading that happens on its platform.
Users that participate in the protocol can lend their coins and tokens to the protocol, rather than trading them. By doing so, the user receives liquidity pool tokens that represent their share of the pool. Whenever a trade happens between the pair of cryptocurrencies submitted, the user receives a portion of the fees proportional to their share of the pool.
By creating and maintaining these smart contracts, Uniswap is one of the most well-known decentralized finance (DeFi) protocols both on the Ethereum blockchain and the crypto space as a whole.
The Uniswap token (UNI) acts as a governance token for the Uniswap protocol. As a governance token, UNI is utilized by users that want to have a say in how the protocol conducts itself and moves forward. This participation by holders of the Uniswap token is part of what makes Uniswap a decentralized platform.
Otherwise, the Uniswap token doesn’t do much right now. Unlike other AMMs, Uniswap doesn’t reward liquidity providers with its native token as an incentive to use its ecosystem. Competitors further incentivize folks to use their protocol by having higher payouts as they mint more of their tokens.
This payout structure is what makes Uniswap different. Because Uniswap doesn’t have to pay its token out to liquidity holders, the Uniswap token doesn’t see much minting of new tokens. With a fixed supply, the price of Uniswap can go up or down based on market forces and sentiment rather than risking supply inflation exceeding demand.
The Uniswap Governance Process
As a governance token, UNI has a use case in helping decide what direction the Uniswap protocol goes. To do this, several steps have to happen:
- A person submits a proposal to both the Uniswap forum moderators and via a call in Uniswap’s Discord server
- The proposer of the improvement does a Temperature Check, which is a snapshot vote to see if the proposal is good according to the broader community that takes 1000 UNI tokens to create.
- As community feedback comes in, the Temperature Check proposal is refined and put to new votes until fully realized.
- Using another 1000 UNI, a consensus check is created to ensure that the rest of the protocol users are in agreement.
- The proposal elevates to an on-chain vote, where a concordance of 2.5 million UNI is needed to create the change proposed by the community proposal.
In other words, creating a community proposal and getting it to pass is similar to passing a law in a legislature of some kind. The proposal receives heavy reviews from thousands of users to ensure that the proposal will benefit the overall system. One false move with a proposal can result in the loss of revenue or service, so users are careful to check out new ideas.
The Pros and Cons of Decentralized Governance
With the advent of smart contracts, decentralized governance has allowed users of all kinds to band together to create and maintain working ecosystems for their cryptocurrency. This voting mechanism where you commit held coins or tokens to a proposal exists across all kinds of projects, not just Uniswap.
While they might not be clear at first, there are some solid advantages to going the decentralized route with cryptocurrency governance:
- Trustless: You don’t have to trust that the other parties will do as they say they will, but instead that the smart contract code will execute correctly.
- Accessible voices: People get a voice regardless of whether they hold one token or one thousand of them.
- Reduced conflict: By placing the power to make changes solely in the hands of the token holders, there is an incentive for community proposals to be in favor of adding value to the protocol.
However, the decentralized nature of these protocols means that there are some drawbacks native to them:
- Slow: It can take a long time to enact a community proposal if there is no fast-track option available for emergencies.
- Votes are proportional to tokens held: Someone holding one thousand tokens has much more sway in a vote than someone with only one token, which can feel unfair.
- Not for the average user: Getting into these votes requires some technical know-how, which could put DeFi and other decentralized services out of reach for some folks.
For now, we will have to wait and see if these decentralized governance tools continue to work or not for Uniswap and the other decentralized protocols out there. Many of these protocols have their own rules and values to better match the protocol’s goals. Time will tell which models work out in the long run.
Buy Uniswap with iDEAL
If you’re interested in investing in Uniswap, the easiest way to do so is by buying Uniswap with iDEAL for yourself. Most centralized exchanges let you connect a checking account or another payment processor.
However, both options tend to take a few days to connect and have funds deposited into your account. iDEAL lets you use your credit card or debit card to get funds into your crypto exchange account faster and make the funds readily available for you.
To use iDEAL, you’ll want to follow these steps:
- Buying Uniswap with iDEAL on Knaken is easy. First, select the crypto you want, which in this case is the Uniswap coin. Next, select "iDEAL" in the dropdown box under "Payment method."
- You'll find the list of other payment methods we offer, including credit card and bank transfers. Click "Buy" and wait for your transaction to process.
- Once your UNI crypto arrives, you can view it from your Knaken dashboard. From there, you have complete control of your UNI coins—keep them on Knaken, stake them, or move them to a cold wallet.
- If your goal is to build up a long-term hold of Uniswap, we recommend setting a calendar reminder to return to Knaken on a weekly or monthly basis. That way, you can dollar cost average your way into your UNI investment.
The Future of Uniswap
What makes Uniswap so interesting is the fact that, despite its relatively old age for a crypto protocol, it still keeps moving along. The UNI token was released in 2020, but Uniswap has been around for much longer than that. Decentralized applications come and go, but Uniswap has managed to stick around for quite a while.
As the Layer 2 (L2) solutions continue to roll out for Ethereum’s scaling troubles, Uniswap is looking towards expanding onto these blockchains. By adopting more blockchains that the protocol can run on, Uniswap can increase its reach and reduce the chances that one blockchain failing causes the protocol to collapse.
Also, if these facts weren’t enough, Uniswap has a limited supply of tokens for its governance. As more people enter the Uniswap protocol and learn about its governance program, more tokens will be bought, which drives the price up.
We’ve already seen this bump in value in 2021. Despite being down almost 66% from its all-time high price, UNI is still up 156% over the previous year alone. It wasn’t until 2021 that Layer 2 blockchains for Ethereum started to roll out, so much of these chains’ growth remains to be seen.
All of these tidbits indicate that Uniswap doesn’t seem to be going anywhere or falling apart anytime soon. The Uniswap community tends to attract level-headed and earnest users who want to exchange cryptos and earn some passive income. The ability to govern a protocol that allows just that is attractive and has been for several years so far.
Uniswap shares its protocol name with its token, abbreviated as UNI. This token allows holders to participate in governance and community proposals meant to improve the function and performance of the Uniswap ecosystem.
Payment processors like iDEAL make buying into tokens like UNI easy by allowing you to use your credit card to add funds. Try using iDEAL today to get into the wonders of UNI!