What is the Uniswap crypto liquidity pool and how does it work?

If you are familiar with Uniswap, you know that this automated liquidity protocol or so-called decentralized exchange has become very popular. Government pressure and censorship on centralized exchange offices is one of the main factors in the popularity of decentralized exchange offices that are engaged in providing liquidity to their decentralized exchange offices. In this article on the shetcoiner site, we will introduce the Uniswap liquidity pool and how the Uniswap crypto liquidity pool works and we will explain to you.

What is Uniswap?

Uniswap is a decentralized exchange or more specialized DEX, which, unlike the centralized exchange mechanism, allows the exchange of tokens without the need to order in the order lists. Swap method in centralized exchanges is that you transfer your token or crypto from your wallet to the exchange wallet and this action of yours is registered in the Order List to receive another token, then the other party also transfers the transaction to gives an exchange and is placed in the order List. Now an exchange will transfer the token you want from his wallet to you and the second person token to his wallet.

Now, do you think that it would not be easier for this financial exchange to be done directly and easily by yourself and the buyer or seller in front?

Uniswap is a decentralized exchange, or more precisely an automated liquidity protocol. In this platform, unlike traditional and ordinary centralized exchanges, the Order Book and Order List are not used and no intermediary is needed to make exchanges. The most important feature of Uniswap is that users can exchange with each other without any intermediaries. This feature of direct financial exchanges in Uniswap exchange has made these financial exchanges completely resistant to government controls and censorship.

Use Liquidity Pool in Uniswap to exchange crypto currencies

If we want to tell you what a Liquidity Pool is, you should know that there are a set of different tokens in the Liquidity Pool, all of which are under a smart contract on the Ethereum platform. Therefore, fees and transactions are calculated with Ethereum. Centralized exchanges add currency pairs to their trading system to conduct their transactions, and this is done in a centralized manner controlled by the exchange itself. But on decentralized platforms and protocols like Uniswap, anyone can create any currency pair by providing liquidity. For example, for ETH and ADA swaps, there must be a pair of these two crypto currencies in the liquidity pools.

The Uniswap working model uses a Liquidity Pool. In this model, users called Liquidity Providers are responsible for providing liquidity. A unique pricing mechanism is also used here, which will increase the depth of the market. In the rest of this article, we will go into more detail about these financial exchanges using Liquidity Pool in Uniswap.

On Uniswap, users can easily exchange a variety of Ethereum ERC20 tokens.

Crypto Liquidity Pool enhancements on Uniswap

In the early versions of Uniswap only, which was released in 2018, there was a big problem, which was that on one side all the Liquidity Pools were ETH. This made Uniswap financially dependent on Ethereum, so users were always exposed to Ethereum fluctuations in addition to the currency fluctuations of their choice.

This problem, which was in V1Uniswap version, was tried to be solved in the next version, V2 version, and this problem was solved by adding the possibility of using ERC20 / ERC20 tokens in various Liquidity Pools. In this version, Uniswap no longer had to have one side of the eth pool and users would be affected by price fluctuations or worry and not take action.

In version V3 of this automated liquidity protocol; another feature was the most prominent feature of this version is the liquidity that users can control themselves. In this version, liquidity suppliers can determine at what price range their capital will be used in the pools.

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