There are many decentralized exchanges in the space that has various advantages over the traditional centralized exchanges. DEX are anonymous, trustless, permission less, censorship resistant and costs low fees compared to trading on CEX. Even with all those benefits none of the decentralized exchanges really took off. The problem? Lack of liquidity. Then came Uniswap.
You all know Uniswap is one of the most important and most discussed project in the DeFi space. It currently has the largest decentralized trading volume that even overtook some of the popular CEX like Kraken and Coinbase.
Uniswap is not actually a cryptocurrency exchange. It’s a protocol that allows you to swap / exchange tokens on the Ethereum blockchain directly from your web3 wallets such as Metamask, Trust wallet etc.
Anybody can swap between ETH and any Ethereum based tokens. Since it uses liquidity pools instead of order books no deposits or withdrawals are required to trade on Uniswap. No custody, no intermediately and no KYC. Using Uniswap you can quickly swap tokens or earn fees by providing liquidity to the market. Also anyone can create a market by supplying equal value of ETH and an ERC20 token.
Here we are not going to see how Uniswap works or the mechanics of the exchange. Instead we’ll explain the specifications and use cases of UNI – A native token of Uniswap protocol.
Uniswap (UNI) Introduction
Uniswap mainnet was launched on Nov 2018. Since its inception the exchange has served as a trustless, permission-less and a highly decentralized financial infrastructure.
Currently Uniswap is the most important protocol in DeFi ecosystem and is the number one decentralized finance app by users. Also it is the largest DeFi protocol in terms of (TVL) total value locked. According to DeFi pulse; over $2 Billion USD value of cryptocurrency is locked on Uniswap platform.
Since the launch; Uniswap’s user base has grown exponentially and the platform has thrived independently. Having a proven product market fit for decentralized finance; Uniswap is now ready for community led growth, development and self sustainability.
The newly launched UNI (ERC-20) – The native token of Uniswap is meant to serve this purpose.
Launch of UNI token
A few weeks ago (16th Sep 2020) the top automated decentralized exchange, Uniswap announced their launch of the new ERC20 token, UNI. This was highly anticipated by the community. But what’s more surprising is the way these UNI tokens are being distributed and allocated.
Everyone who used Uniswap platform before Sep 2020 have received a free airdrop of 400 UNI tokens which is worth more than $1500. On top of that liquidity providers were retrospectively rewarded with extra UNI tokens.
If you’ve traded on Uniswap pre Sep 1st 2020, then Congratulations! You are eligible to claim 400 UNI tokens. You’ll get even more if you’ve supplied liquidity to the platform. Hope you’ve claimed it already.
A total of 150,000,000 UNI out of the total supply of 1,000,000,000 UNI became immediately claimable by the historical users and liquidity providers. Making it one of the widely distributed tokens in the DeFi space.
We’ll get into the token supply and distribution shortly. Before we check out the token specifications let’s first see its use cases. What is UNI and what purpose does this token have?
What is UNI?
UNI is the decentralized governance token that will be mainly used for voting and governance actions in the Uniswap protocol.
What is a governance token? A governance token is basically a digital asset that allows the holders of the token to vote and make decision that affect the future of the protocol to which the token corresponds.
The team behind Uniswap wanted to further decentralize the platform and make it a publicly owned, self sustainable financial infrastructure.
UNI token is meant to serve this purpose. The token holders of UNI will be able to participate on Uniswap’s governance. They can vote on different proposals or delegate their votes to a third party. This governance system will facilitate the protocol usage and development. Also it will actively guide the platform towards the future.
UNI specifications – Token supply and distribution
- Token Name: UNI – The Uniswap protocol token
- Total Supply: 1,000,000,000 UNI
- Contract Address: 0x1f9840a85d5aF5bf1D1762F925BDADdC4201F984
During the launch 15% of UNI tokens that is 150,000,000 UNI out of 1,000,000,000 total UNI were distributed to over 200k Ethereum address. The distribution are as follows:
- Historical Liquidity providers – ~49k Address (4.916% – 49,166,400 UNI)
- Uniswap traders: ~251k Address (10.061% – 100,613,600 UNI)
- SOCKS holders / redeemers: – 220 holders (0.022% – 220,000 UNI) (https://unisocks.exchange/)
At the time of writing this article there are around 148K UNI in circulation and these tokens are being actively traded on both centralized and decentralized exchanges.
A total of 1 Billion UNI have been minted at genesis. It will become accessible over the course of 4 years and is allocated in a following way:
- 60% of the UNI token (600,000,000 UNI) goes to the community members. A quarter of which (15% – 150,000,000 UNI) has been already distributed to the past users.
- 21.6% (212,660,000 UNI) to team members and future employees with a 4 year vesting period.
- 18.04% (180,440,000 UNI) tokens allocated to investors with 4-year vesting. and
- 0.069% (6,900,000 UNI) for advisors with 4 year vesting.
After 4 years there will be a perpetual inflation rate of 2% per year to ensure continuous participation and contribution to the protocol.
Community treasury
Out of 1 Billion 60% of the tokens (600,000,000) is allocated to the community. Out of which 15% (150,000,000 UNI) is already distributed to historical users and liquidity providers. While the 2% of the 600,000,000 UNI will be only available after the 4 years the remaining 43% (430,000,000) will be retained by the governance treasury.
These tokens will be distributed on the regular basis through various programs such as: liquidity mining, contributor grants, community initiatives etc.
Liquidity mining
To start with, Uniswap introduced 4 liquidity mining pools which will be rewarding liquidity providers with UNI tokens based on the proposition of their share to the pool’s liquidity.
This liquidity mining program went live on 18th of September 2020 which will run until November 17th, 2020.
The four liquidity mining pools where you can currently mine UNI are:
ETH / WBTC (Wrapped Bitcoin), ETH / USDT, ETH / DAI and ETH / USDC.
5,000,000 UNI is allocated per pool to LPs, which is roughly distributing 83,333 UNI per pool per day.
After the initial 30-day governance grace period that is starting October 18, 2020; the UNI token holders can vote to add more incentivized liquidity mining pools containing different tokens.
Soon we’ll make a beginners guide on liquidity mining and how to earn UNI token rewards by contributing to the liquidity pools.
For now, let’s wrap up this article with some key takeaways.
Potential use cases of UNI token
Uniswap is the leading DEX in terms of both volume and liquidity. The team is currently working on Uniswap v3 and is always looking forward to increase the use case of UNI token.
Today the main function of UNI is to govern the Uniswap protocol. The future of Uniswap is in the hands of liquidity providers and its users.
Currently there are 2 use cases for UNI
- UNI can be used for voting and governance.
- Users can add liquidity to Uniswap and start earning UNI tokens.
Other than this there is a lot of speculation on the protocols revenue share model to the UNI holders.
But as of today, we know Uniswap does not charge trading fees in native token (UNI) like some of the centralized exchanges does. It is highly likely that governance proposals for trading fees on UNI will be implemented by the community. This will additionally foster the growth of the Uniswap’s ecosystem.
What do you think about Uniswap and UNI? Let us know in the comments section.
Useful links:
- Uniswap: https://app.uniswap.org/
- Etherscan: https://etherscan.io/token/0x1f9840a85d5af5bf1d1762f925bdaddc4201f984
- About UNI token: https://uniswap.org/blog/uni/
- UNI stats: https://defipulse.com/uniswap
Now before you go remember that nothing in this article constitutes financial or trade advice. Before you make any investments in cryptocurrency you should do your own due diligence or seek a professional advice.
This is just an informative article that provides insights on UNI.
