Uniswap is the first automated market-making trading protocol built on the Ethereum blockchain.

Project Vision:

Build a trustless and highly decentralized financial infrastructure.

Market needs:

In the blockchain world, it is necessary to reshape the centralized business model in a decentralized way, and the exchange is only a part of it; Risks such as self-running, especially the fact that the control of assets is not in the hands of ordinary users. For the concept of disintermediation and no need to trust third parties, decentralized exchanges are an indispensable part of a more encrypted world. Before Uniswap launched the AMM automatic market-making model, the DEX (decentralized exchange) field continued the traditional order book market-making and counter transaction market-making models, and could not support a large number of users in terms of transaction speed and transaction depth. There is also a lack of incentive models.

Solution:

Uniswap is an Ethereum-based protocol designed to facilitate automatic exchange transactions between ETH and ERC20 token digital assets (V2 version supports any ERC20 transaction pair). Uniswap is fully deployed on the chain, any individual user can freely deposit tokens for exchange, and can withdraw freely, without the registration, identity verification and withdrawal restrictions of centralized exchanges.

Uniswap supports any individual user to issue ERC20 tokens on Uniswap and create a corresponding fund pool. When a certain ERC20 token fund pool (ETH and ERC20 transaction pool or ERC20 and ERC20 transaction pool) is created, the platform encourages Participants of all parties conduct transaction exchange in the same fund pool, and give the first liquidity provider who provides liquidity to this contract the right to set the exchange rate between this ERC20 token and ETH (or ERC20 token), and All transaction fees (0.3% of transaction volume) are given to liquidity providers. When the exchange rate in the fund pool is inconsistent with the broader market, there is room for arbitrage. At this time, arbitrage traders can smooth out these price differences by moving bricks, so that they can maintain the same exchange rate as the broader market. After that, all liquidity providers will use the exchange rate when they recharge as the basis for calculating the equivalent.

Project Features:

Uniswap contains two types of smart contracts:
Trading contract: A trading contract supports an ERC20 token, and each trading contract reserves a certain amount of ETH and the supported ERC20 token. The transaction contract can also realize the direct transaction of one ERC20 token with another ERC20 token.
Factory Contract: Can be used to deploy new transaction contracts. Any ERC20 token that does not have a trading contract on Uniswap can use the factory contract to deploy a trading contract, that is, ERC20 tokens can be issued on Uniswap.

Uniswap's asset liquidity:
Uniswap uses the liquidity of the reserve fund to realize the exchange of digital asset transactions on the agreement. The reserves in the trading contract are provided by many "liquidity providers". These liquidity providers recharge the equivalent ETH and ERC20 tokens into this trading contract. The first liquidity provider who provides liquidity to this contract has the right to set the exchange rate between this ERC20 token and ETH. When there is room for arbitrage in the exchange rate, arbitrageurs move bricks to smooth out the price differences in different markets.

Uniswap's liquidity provider will capture transaction fees:
After the liquidity provider adds liquidity to the Uniswap pool, the transaction contract will mine and send "liquidity tokens" according to its proportion in the fund pool ". These tokens are shares of record liquidity providers. If someone adds liquidity to the fund pool, new tokens will also be mined. If someone withdraws liquidity, the mined tokens will be destroyed, so that the relative proportion of each liquidity provider remains the same. The income of liquidity providers comes from transaction fees, currently 0.3% of the transaction volume, and these transaction fees will be allocated to liquidity providers in proportion.

Technical Features:

Uniswap [Automatic Market Maker (AMM)] mode, that is, put two certain amounts of encrypted assets in a smart contract, and based on the AMM algorithm, the transaction price of the token can be automatically calculated.

The main point of this algorithm is that no matter what the transaction volume is, the product of the quantity of the two assets exchanged remains a constant, that is, the constant product market maker. The formula is x*y = k, where x and y are the number of tokens in the liquidity pool, and k is the product. To keep k constant, x and y can only vary inversely to each other. Meanwhile, liquidity providers that provide liquidity to automated market makers (AMMs) may see their staked tokens lose value. This risk is called [impermanent loss]. In simple terms, impermanent loss refers to the difference in value between holding tokens in an AMM and holding tokens in your own wallet. This happens when the price of a token in an AMM deviates in any direction. The greater the deviation, the greater the loss of impermanence.

Incentives:

UNI's initial liquidity mining plan will be officially launched at 08:00 on September 18, 2020, Beijing time. The first phase will run until 08:00 on November 17, 2020, Beijing time. The four liquidity pools of ETH/USDT, ETH/USDC, ETH/DAI and ETH/WBTC on Uniswap v2 will support UNI mining.

In the first stage, each fund pool will receive a total of 5,000,000 UNI, which will be allocated to liquidity providers in proportion to the liquidity provided. That is, each pool will distribute 83,333.33 UNI rewards per day. There will be no lock-up period for this part of the rewarded UNI.

Token distribution and release:

Initial distribution:
15% for community airdrops;
2% for liquidity mining.
(Community airdrop: 15% of the initial supply of UNI tokens will be distributed to the Uniswap community through airdrops, 10.06% of the supply will be provided to historical users, and 4.92% will be distributed to stock liquidity providers (according to the past Liquidity is distributed proportionally), stock SOCKS users can claim 0.02%.

Liquidity mining: Uniswap distributes another 2% of UNI tokens to the community through liquidity mining. One or more pools providing liquidity to farm UNI tokens (more pools may be added after 30 days). During the period from September 18th to November 17th, 2020, 5 million UNI will be allocated to each pool and distributed to liquidity providers in proportion to the liquidity provided. )

Released in four years:
Governance library will retain 43% of UNI supply;
Team members and future employees will receive 21.51% of UNI supply;
Investors (ie Uniswap early venture capitalists ) will receive 17.80% of the UNI supply;
Advisors will receive 0.69% of the UNI supply.
(The official has not publicly disclosed the exact release schedule.)

Security Audit:

From January 8 to April 30, 2020, a team of 6 engineers audited the Uniswap V2 smart contract. (Previously, the team was responsible for the smart contract development and formal verification of MakerDAO, and completed the implementation and formal verification of multi-guaranteed Dai.)

Market Opinion:

The reason why people think that UNI has value is essentially because of Uniswap’s leading position in the DEX field. Although UNI is the governance token of the protocol, it has potential future possibilities.

Project risk:

The selling pressure of the team and investors is relatively high, AMM market making has the risk of free loss, contract loophole risk, etc.

Value Judgments:

UNI currently only has a governance role and is a governance token. All transaction fees generated on Uniswap are not used to destroy UNI nor given to UNI holders.

Current Uniswap fees are mainly obtained by liquidity providers. Currently, liquidity providers not only capture all transaction fees, but also receive UNI token incentives for liquidity mining of the four major trading pairs.

In the short term, according to the governance plan, some Uniswap protocol transaction fees may be distributed to UNI, allowing UNI to capture part of the fee value, thereby stabilizing its price support.

In the long run, the integration of the interests of liquidity providers and token holders will enable UNI to capture the full cost value, while the income of liquidity providers will be realized through UNI itself. This is a win-win situation for liquidity providers, UNI token holders, project parties, ecological partners, etc. However, the formation of this situation requires the joint efforts of the community and needs to be promoted from all aspects, which is difficult to achieve in the short term. What can be achieved as soon as possible in the short term is to give some transaction fees to UNI token holders.

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