When regulators tightened the grip on centralized crypto exchanges, decentralized exchanges (DEXs) gained traction. Uniswap recently became the largest DEX in the world.
As a native token of the decentralized exchange Uniswap, UNI performs several functions. Apart from its role as a governance token, it is also distributed to investors who deposit their assets within Uniswap.
This governance token gives its holders the right to vote on all DEX-related proposals. It thus allows them to participate in decisions related to the operation of the network and to benefit from the gradual expansion of decentralized exchanges.
Investors who hold at least 1% of UNI’s total supply even have the opportunity to submit development proposals. It should also be noted that the value of UNI tokens correlates with the value that investors place on Uniswap.
Buying Uniswap (UNI): the risks
In recent years, decentralized exchanges have been subject to stricter control by regulators, who want to apply their laws to them and make them more centralized, or even eliminate them.
At this time, it is unclear whether the Securities and Exchange Commission (SEC) and other regulators will get their way. However, if Uniswap is targeted, the price of its native token will undoubtedly be altered, which could lead to heavy losses for investors.
How does Uniswap compare to Bitcoin and Ethereum?
Like company stocks, these three assets are not at all similar, although they all belong to the cryptocurrency category. Their market caps, offerings, and use cases are indeed very different. In addition, each of them uses a blockchain that is distinguished by its own characteristics.
Again, their use cases, their market caps… are very different. However, the commonality between ETH, the native token of Ethereum and the UNI token, is that they both operate on the Ethereum blockchain architecture.
However, ETH uses layer 1, while UNI works on layer 2. In the decentralized ecosystem, a layer 1 network refers to a blockchain, while a layer 2 protocol is a third-party integration that can be used in conjunction with a layer 1 blockchain. Thus, developers create layer 2 protocols that use the layer 1 network for all aspects related to consensus and security.
ERC20 is a standard used for creating and issuing smart contracts on the Ethereum blockchain. Indeed, most Ethereum layer 2 tokens are ERC20 tokens. This is why Uniswap DEX users must pay their transaction fees in ETH.
What should you know before choosing a DEX?
Investors should consider these five very important points:
1- Ensure the availability of the DEX and the possibility of using it within their country of residence;
2- Check the most important policies and terms and conditions of the exchange;
3- Find out about the reputation of the DEX and its credibility;
4- Ensure that the platform uses the necessary security tools for asset protection;
5- Research DEX fees and volumes; more secure crypto exchanges usually charge higher commissions. When a DEX is said to have high volume, it means that its users make a lot of trades on a daily basis. Indeed, the higher the volume, the higher the liquidity, which is essential.
How much should you invest in crypto? And what are the factors that affect this percentage?
It all depends on your current financial situation and your future goals and plans. Your risk tolerance is also a determining factor. Remember that you should never invest what you cannot afford to lose.
Buying Uniswap (UNI): some tips to follow
First, learn about the UNI token and the Uniswap exchange, which offers P2P trading. (Here is a complete guide where we explain everything you need to know about the Uniswap DEX).
Second, before buying Uniswap, think about what you can do with your tokens. For example, you can choose the “add liquidity” option to lend crypto to any liquidity pool with your tokens.
Finally, keep in mind that investing in crypto can be extremely risky. Investors should indeed consider these assets like any other technology investment; that is, by focusing on the long term and expecting ups and downs.
About the Author
Tina Chu has worked in Asia-Pacific and Europe. She also served on the committee of the Wharton International Business Conference in Hong Kong. Currently, she is Vice President of Marketing and Development at capital (an Asian crypto asset management platform). After a management experience in high technology companies such as Tencent, Expedia and Nokia, and Klook, Tina received several distinctions. She also led international teams to grow user bases of major products both at Tencent JOOX (SEA #1 music streaming app) and Klook App (Asia’s largest online travel agency). Tina holds an MBA from the prestigious Wharton School of Business at the University of Pennsylvania.
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Buying Uniswap (UNI): Benefits and Risks – BeinCrypto UK
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