Uniswap (UNI) is the most important and widely discussed project in the DeFi space. Uniswap is a protocol for the decentralized exchange of tokens on the Ethereum Blockchain. The Uniswap protocol is deployed as a set of smart contracts and it is completely decentralized, permissionless, and censorship resistant.
Uniswap is built on the concept of Liquidity Pools and Automated Market Makers or to be precise a constant product market maker.
The initial version of Uniswap was published to the Ethereum Mainnet on November 02, 2018. This was a culmination of over a year’s worth of work by its creator Hayden Adams. Of note, he was a mechanical engineer and he started it without any prior programming knowledge. He learnt how to write smart contracts while working on the initial version of the Uniswap Protocol.
The initial idea of implementing an automated market maker came from Hayden’s friend, Karl Floersch, who was impressed by one of Vitalik Buterin’s blog post, which described Ethereum as being a constant product market maker. At the time of building the first version of the Uniswap Protocol Ether Delta was pretty much the only decentralized exchange, which was based on the order book model, which did not fit very well in the Layer 1 blockchain protocol like Ethereum. Ether Delta had an un-intuitive user interface which resulted in very poor user experience and lack of liquidity.
While working on optimizing smart contracts and preparing for a potential mainnet launch, Hayden applied for an Ethereum Foundation grant which was later accepted in July 2018. The money from the grant allowed for auditing Uniswap smart contracts by a company called Run Time verification. The initial audit by run-time verification resulted in adding extra safety checks and reworking. Some of the math operations to minimize the rounding errors.
On top of that a full formal verification, was also underway. Before fully launching the protocol Hayden decided to rebuild the user interface for better user experience. The first version of the protocol was launched on the last day of the DecCon4 conference with $30,000 worth of initial liquidity across 3 different tokens and the Protocol quickly gained traction, which resulted in an initial seed investment that allowed Uniswap’s team to work on the second version of the Protocol.
In May 2020, UniSwap launched UniawapV2 a second version of the protocol. The main feature was the addition of the ERC-20-ERC-20 liquidity pools. Before V2 every liquidity pool had to consist of ETH has one of the currency. For instance, if a trader had to trade USDC for DAI, the trader had to trade the USDC for ETH and then to DAI, which led to higher gas fee and more slippage. Thus, V2 worked better for liquidity Providers.
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