The Uniswap decentralized exchange (DEX) is the most popular DEX built on the Ethereum blockchain. For users wondering “What is Uniswap?”, this article provides an overview of what it is and how it works, as well as several ways users can get started using Uniswap DEX.

With Uniswap, users can trade crypto tokens without having to go through an intermediary. Not having to rely on a third party leads to receiving virtually no economic rent. Instead, Uniswap relies on smart contracts to execute transactions. Smart contracts are algorithms that run automatically once certain predefined conditions are met.

How does Uniswap work?

Because Uniswap is an open-source protocol, many DEXes with the “swap” suffix have been launched in the market. These protocols are essentially copies of the original Uniswap source code. Where they differ is in the graphical user interface (GUI) as well as in the differentiation and positioning of the offer.

The most famous and controversial of these imitators is Sushiswap. After copying the source code from Uniswap, he launched a vampire attack. A vampire attack is where a DeFi protocol offers various incentives to liquidity providers. A vampire attack aims to remove liquidity from the target protocol.

How Sushiswap pulled off a vampire attack? The platform launched an aggressive marketing campaign. They also made it easy to switch Uniswap liquidity providers. Finally, they offered incredibly lucrative rewards to make it worthwhile.

Another less controversial example is Pancakeswap. This DEX lives on the Binance Smart Chain. Pancakeswap offers non-fungible tokens (NFTs) and provides yield farming opportunities, which Uniswap does not.

Uniswap, however, is the first DEX to rely on an Automated Market Maker (AMM) model, discarding the traditional open-book model. The open-book model is not as compatible with the DEX due to, among other factors, liquidity issues. In contrast, the AMM model uses a liquidity pool with a constant product market maker model, and therefore relies on the constant product formula:

It should be noted that in Uniswap version 1 or v1, liquidity pool providers were at risk of incurring an impermanent loss. In other words, it’s best to think of v1 as a minimum viable product that was released for beta (or even alpha) testing.

With each iteration, Uniswap has introduced tremendous improvements for users. For example, v2 introduced oracles and UNI airdrop tokens. UNI tokens are the official governance token of Uniswap DEX. Uniswap users received these airdrop tokens if they used the platform before September 2020.

For v3, the most noticeable improvement came in the form of concentrated liquidity. This new form of liquidity allowed liquidity providers to set the terms on which they would receive their commissions.

Additionally, Uniswap v3 has been released on the Optimistic Ethereum network. Optimism is a layer two scaling solution that is vastly superior to Ethereum’s layer one. Its main advantages include reduced slippage and high gas costs, as well as near-instantaneous transaction speeds.

So how do you buy coins from Uniswap? Before diving into using Uniswap, it is important to answer the question: Is it safe to use Uniswap? Are smart contracts, blockchain technology and decentralized finance (DeFi) secure? These are the technologies on which Uniswap is built.

The Ethereum blockchain is extremely secure unless there are open vulnerabilities for exploitation. For example, Uniswap suffered a bug exploit in the past with a reentrancy attack, but the bug has since been fixed (making Uniswap stronger in the long run). And since then, the liquidity and the volume of transactions have only increased, and considerably.

Now let’s see how people can use the platform.

How to use Uniswap?

Users who want to learn how to trade on Uniswap have many options available to them. This section explains how to use Uniswap with mobile and the Trust Wallet as well as the Coinbase wallet.

But first, the steps on how to use the Uniswap protocol with Metamask are discussed. Next, this section outlines the steps for dual-mobile-friendly approaches.

Keep in mind that Metamask is just as mobile friendly. Yet, as a web wallet that functions as a browser extension, its user experience is flawless on Desktop, with almost no competition. This is the reason why, for Metamask, this article focuses on the desktop experience.

How to use Uniswap with Metamask?

The steps to use Uniswap with Metamask are listed in the figure below:

How to use Uniswap with Coinbase?

The Coinbase approach might be less intimidating for US citizens who are already familiar with the platform. New users should begin the steps below after successfully opening a Coinbase account. Those who already have an account can start with step 1.

How to use Uniswap with Trust Wallet?

Trust Wallet is one of the most popular mobile wallets out there, and there’s a reason for that. Trust Wallet is easy to use, user-friendly and offers a range of tools for users. Below are the steps for using Uniswap with Trust Wallet.

Uniswap’s exorbitant fees are a key deterrent to new Uniswap users. Because Uniswap lives on the Ethereum blockchain, it relies on ETH for gas fees. Due to the design of Ethereum, greater congestion leads to higher gas fees, as it fuels a bidding war between users competing to have their transactions inserted into the next block first.

To bypass failed transactions, please consider accessing the settings on Uniswap. (Users can do this by clicking the gear icon.) Before executing a trade, users should adjust the slippage tolerance to around 12%.

Slippage tolerance is simply the difference in price between when a transfer is confirmed and the price sellers are willing to accept. Adjusting the slippage tolerance ensures that user transactions will be executed upstream. Front-end execution increases the chances of the transaction being included in the next block.