What Is UNI? An Introduction to Uniswap
UNI is the leader of this year’s airdrop.
Uniswap, officially launched in November 2018, is currently the world’s largest decentralized exchange, based on the development of the Ethereum network. At the beginning of launch, Uniswap did not attract much attention, and the team has been quietly working on the product. Finally Uniswap stood out in the wave of DeFi this year, and the UNI airdrop that worth hundreds of millions of dollars in September pushed Uniswap to a new height, with the lockout volume more than MakerDAO that took lead for many years in DeFi. UNI, the token of Uniswap, shot up 300% on its first day and became a star project.
Currently, Uniswap trades more than $300 million a day on average and generates nearly $1 million in fees, all of which go to the market makers on Uniswap.
Constant function market making mechanism
For Uniswap, the biggest feature is the AMM (Automated Market Maker). Different from the market making mode of traditional exchanges, automatic market making needs no human intervention. It is completely automated.
Uniswap uses a constant product model, an algorithm first proposed by V in 2016 and later used by Hayden Adams in exchanges.
To make a market on Uniswap, you only need to provide two identical tokens in equal value to start making a market.
If Bitcoins put $1000 worth of ETH and $1000 of USDT into the ETH/USDT trading pool, when the price of ETH rises, the number of ETH in the pool decreases and USDT increases, and vice versa.
For example, the current ETH price is 350USDT, so if we provide 10ETH and 3500USDT. At this time, the market-making model is as follows:
The above can be simply expressed by the following formula (Note: the following formula is simplified for ease of understanding).
Now suppose that the price of ETH drops to 320USDT. Plug K=35000 and P=320 into the formula, we can see that X and Y are 10.8 and 3240.7 respectively. In other words, as the price of ETH drops, we have more ETH in our hands.
Reference: https://www.bixiaobao.com/en/coinlist/uniswap
Now, what is the gain from making a market?
3240.7*2–3500*2=-$518.6
Calculations show that the market making actually made a loss, due to the fall in the price of Ethereum. However, if we still had the same amount of ETH, the loss due to the price drop would only be $300, whereas the AMM mechanism above has allowed me to lose additional $218.6, which is also known as an impermanent loss.
Why did market makers have more Ethereum in their hands when the price of Ethereum fell?
This is because exchanges using AMM do not set prices themselves, but arbitrageurs do. If the price is $350 on Uniswap and $320 on OC, the gap between the two is as high as $30, and arbitrageurs may wipe out the gap. As in the example above, the arbitrageurs continue to sell over-the-counter ETH on Uniswap, thus increasing the number of ETH in the pool as well as decreasing the number of USDT. Eventually the price of Ethereum will be the same the over-the-counter price.
So why would anyone participate in market making when it is possible to lose money?
Market-making can produce fee income, which is obviously profitable if it covers impermanent losses. It is an additional source of income for long-term Bitcoin or Ethereum holders.
Founder
The story of Hayden Adams, the founder of Uniswap, is inspiring.
Unlike V God, Hayden Adams didn’t learn programming from an early age. After college, Hayden Adams was laid off from his job as a mechanical engineer at Siemens where things were not going well.
Hayden Adams began to complain to his friends. To his surprise, his friends repeatedly encouraged him to learn blockchain technology and enter the blockchain industry.
Over the next few months, Hayden Adams learned about Ethereum, Solidy, and JavaScript.
Soon after, after learning about smart contracts, he and a few friends developed an early version of Uniswap, but Uniswap didn’t make any money. To make a living, Hayden Adams decided to get a job.
Hayden Adams was worried about his job when a friend introduced him to V God at a conference.
V God was so impressed with Unsiwap’s product that he applied for a $100,000 research grant from the Ethereum Foundation.
The sponsored teams were progressed so fast that they finally launched Uniswap on November 2, 2018, and the era of Uniswap began.
UNI token offering and airdrop
UNI is Uniswap’s native token and is issued in the ERC-20 format.
The main features of UNI tokens include:
Governance of Uniswap protocol;
For potential benefit share, Uniswap governance has a “switch” in the contract. If it is switched on, the token holder can get part of the agreement fee. The “switch” sets a time lock of 180 days to ensure that investors and liquidity providers (LP) have a half of a year to prepare for this new revenue sharing mode.
In September 2020, in order to compete with Sushiswap, Uniswap launched UNI as a governance token.
UNI will have an initial offering of 1 billion and will be distributed within four years. The distribution mechanism is as follows:
60.00% (600 million UNI) will be distributed to members of the Uniswap community. To incentivize users, 150 million of these tokens will be airdropped to users who had provided liquidity to Uniswap in the early days, each receiving 400 UNI on average, worth thousands of dollars.
21.51% (215 million UNI) will be allocated to team members and employees in the future. These tokens will be unlocked over 4 years.
17.80% (178 million UNI) will be allocated to investors. These tokens will be unlocked over 4 years.
0.069% (6.899 million UNI) will be allocated to consultants. These tokens will be unlocked over 4 years.
A sustained inflation rate of 2 per cent per annum will begin after four years in order to ensure continued community engagement at the expense of passive UNI holders in order to advance the Uniswap process.
Genesis UNI Allocation
Uniswap owes its success to the thousands of community members who have joined the initiative over the past two years. These early members naturally became a strong force for Uniswap, further unifying the community by giving back to the community through the airdrop.
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