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Is UNI a good investment?

Henning Taeger
Henning Taeger
Henning is a writer and editor here at Dollargeek who is passionate about personal finance and cryptocurrency. He enjoys sharing his knowledge about financial management and cryptocurrency with readers, helping them make informed decisions about their money. In his spare time, Henning can be found playing the latest video games or jamming on his guitar. He is constantly on the lookout for new ways to improve his financial literacy and stay up-to-date on the latest trends in the world of cryptocurrency.

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Is Uniswap a good investment?
Table of Contents

Uniswap is one of the biggest decentralized exchanges (DEXs) in the crypto space. The exchange was launched in 2018 and has recorded tremendous growth since then. Like many exchanges today, Uniswap has its native cryptocurrency, called UNI. The UNI crypto coin started trading in 2020, and it has become one of the go-to investment coins for many crypto enthusiasts today.

As the decentralized finance (DeFi) industry grew in 2021, Uniswap also experienced massive growth, but in 2022, the UNI token’s price plunged – making many people question if Uniswap is a good investment.

In this article, we’ll discuss Uniswap and why it can still provide a rewarding investment opportunity for crypto traders and investors. Keep reading!

What is Uniswap (UNI)?

Uniswap is a decentralized exchange built on the Ethereum blockchain. As a decentralized exchange (DEX), the protocol allows crypto investors to buy, sell, and exchange cryptocurrencies without having to go through the stress of creating an account. In other words, trading on Uniswap is more seamless than on popular centralized digital exchanges like Binance and Coinbase.

The Uniswap token (UNI) is the crypto coin that powers the exchange. UNI is an ERC-20 token that runs on the Ethereum network, like the Uniswap platform. It is one of the top 20 biggest cryptocurrencies by market cap. So, for a coin that was created about two years ago, it’s easy to see why investors believe in its potential.

Similarly, the Uniswap exchange has become extremely popular within a few years – and it recently recorded $1 trillion in trading volume. But what makes Uniswap unique is its smart contract technology that allows investors and developers to invest and create valuable protocols on the Ethereum blockchain.

Now, let’s look at how Uniswap smart contracts work to better understand the protocol’s uniqueness.

Why Should You Invest in Uniswap?

Though there’s no perfect investment opportunity, here are some of the reasons we believe buying into Uniswap may be worth the risk:

DeFi Exchanges are Booming

Centralized exchanges like Binance and Coinbase have many limitations that decentralized exchanges like Uniswap try to solve. Uniswap users do not have to go through rigorous registration and

KYC processes before buying, selling, or investing in crypto.

At the same time, many altcoins and other speculative cryptocurrencies are unavailable on centralized exchanges, which is why a decentralized exchange like Uniswap will remain relevant.

Uniswap is completely decentralized and allows peer-to-peer crypto trading seamlessly and efficiently.

We’re also at a time when many big corporations and wealthy investors are entering the DeFi market and splashing billions of dollars on DeFi and decentralized exchanges (DEXs). Since Uniswap is a big name in this space, it’s safe to say the protocol will benefit from the industry boom and massive advancements that come with it.

Passive Income from Liquidity Pools

Another perk of investing in Uniswap is that the exchange allows investors to provide liquidity on the Ethereum network through smart contracts. Crypto investors can lock in a portion of their assets in tradable pairs and earn passive income from commissions and interests.

On most decentralized exchanges, an investor who stakes their crypto in the liquidity pool receives a 0.3% commission on every successful trade done using the investor’s staked cryptocurrencies. Eventually, the commissions will add up over time and can be likened to an easy passive income for such investors.

On Uniswap, investors are not limited to commissions alone. You can also earn free UNI tokens when you contribute to the exchange’s liquidity. And the interesting part is that these liquidity pools are automated, so you don’t have to go through stress finding a buyer or seller.

The Automated Market Maker (AMM) protocol will connect you with someone once you’ve set your price, and they’re willing to meet it.

Uniswap is a Giant Exchange

Uniswap is the biggest decentralized exchange by trading volume. In 2022, the exchange hit the $1 trillion mark – and for an exchange that was founded about four years ago, this is a massive milestone. Since it was launched in 2018, Uniswap has developed a massive track record and has operated smoothly to become a giant in the crypto industry.

As the global crypto industry continues evolving, it’s safe to say the biggest exchanges will be heavily impacted. And as investors look into exchanges to consider in the DeFi space, they’ll inarguably go bullish on Uniswap.

More Trading Options

Since Uniswap is a decentralized exchange, it offers more token listings and cryptocurrency trading pairs than centralized exchanges. Also, there are usually price differences between cryptocurrencies listed on Uniswap and these centralized exchanges. The difference is another potential profit for crypto arbitrage traders that make money from price differences between centralized and decentralized exchanges.

The different cryptocurrency options also make it more convenient for Uniswap users to diversify their investment portfolio and make more profit from investing using the exchange.

Security

Uniswap is built on the Ethereum blockchain – which is one of the safest blockchains right now. Uniswap interacts directly with your Ethereum wallet, so a hacker needs to break into your Ethereum wallet before getting your funds, as the exchange doesn’t keep or secure your money.

Besides, all the smart contract codes on the Uniswap platform have been reviewed by expert developers who believe the codes are secure, and the platform is non-custodial. As a result, Uniswap is considered safe and secure for investors who are looking to invest in the exchange and its utility token, UNI.

But you still need to be careful of scammers and rug pulls when investing or trading on Uniswap since there are currently no quality control measures in place for new DeFi projects.

UNI Coin Potential

The UNI coin has also experienced some highs and lows since 2018. According to predictions, the coin would experience a pump and rise to $9.02 in 2023. The platform also predicts that UNI will break the $40 mark in 2028 and continuously grow from there.

Another prediction states that a UNI coin will sell for $7.20 at the end of 2022 and reach $8.62 in 2023. The site also predicts that UNI will average $12.54 in five years and will be valued at $10.57 in 2025.

These predictions show that the UNI coin has the potential to grow and reward its long-term investors.

However, you should remember that all the UNI coin price prediction sites are highly speculative about these values, and you may not consider their opinions as financial advice. Instead, you should research extensively on the project and get opinions from financial experts and seasoned crypto investors before committing your funds. You should also ensure you proceed with caution and invest only what you can afford to lose.

How Does Uniswap Work?

Uniswap provides the Ethereum blockchain with liquidity to ensure continuous trading of ETH and other ERC-20 tokens. The protocol gives incentives to users to provide liquidity pools to facilitate these trades through smart contracts.

In other words, Uniswap smart contracts work together to make the exchange, and they make transactions more efficient because they are autonomous and decentralized.

So, the Uniswap exchange encourages investors who own UNI and other Ethereum-based tokens to enter a smart contract with their crypto funds and earn interest for the period they hold these assets. By doing so, they essentially provide liquidity to the market, so these investors are called liquidity providers – while the smart contracts that hold their crypto funds are called liquidity pools.

The good part is that, unlike traditional or centralized digital asset exchangers that collect users’ data or require them to create an account with their information before using their platforms, Uniswap doesn’t have this challenge.

You don’t have to bother about any Know Your Customer (KYC) procedure when you trade on Uniswap. And this is possible because of the Ethereum decentralized Automated Market Maker (AMM) protocol.

AMM eliminates KYC processes completely because it determines a coin’s price or trade using demand and supply metrics. So, Uniswap buyers and sellers only need to agree on the coin’s price in a smart contract and send their coins into the liquidity pool.

How to Provide Liquidity on Uniswap

As stated earlier, you need to enter a smart contract to provide liquidity on Uniswap. To achieve this, you have to stake your Ethereum (ETH), Uniswap (UNI) and other interchangeable ERC-20 tokens like AAVE and Wrapped Bitcoin on Uniswap to earn interest on the investment.

To provide liquidity on Uniswap V2, you have to stake equal amounts of ETH and any other ERC-20 token of your choice to enter the liquidity pool. But there’s another version of Uniswap, called Uniswap V3, that allows you to stake unequal amounts of the two cryptocurrencies you wish to deposit through concentrated liquidity.

When this happens, the smart contract rebalances the amount of both tokens in the liquidity pool when a price change occurs to either of them. But you can suffer impermanent loss using this method, so you should proceed with caution.

Finally, with Uniswap V3’s concentrated liquidity model, you can profit more from higher interest than when you invest in Uniswap V2 because you can set a specific price range in which you want to provide liquidity.

For example, as an investor on Uniswap V3, you can concentrate your liquidity so that the protocol uses your staked funds in the DAI/ETH pool when the price of ETH ranges between $2000 and $3000. You’ll capitalize on the stronger coin and make more profit by doing so.

Is Uniswap Safe?

Uniswap is one of the biggest decentralized exchanges in the DeFi space today. As such, many users and experts believe it’s one of the safest and most secure exchanges for crypto transactions.

Apart from making strides and having a solid reputation, Uniswap is also built on the Ethereum blockchain, which is known for its secure network. And since Uniswap connects directly to your Ethereum wallet, an attacker will need to break into your crypto wallet to steal your money.

Similarly, centralized exchanges are responsible for securing and holding people’s cryptocurrencies, so they are more targeted by crypto hackers because the hackers will get access to more money than if they focus on stealing from an individual wallet.

At the time of writing, Uniswap’s market cap is $4.91 billion, and experts argue that the exchange is undervalued. Some also believe that the UNI token has massive potential, based on its track record and the platform’s recent growth.

However, you should bear in mind that, like other investments, there’s always the risk of losing money when investing in cryptocurrencies. And since UNI is an altcoin, it’s more volatile than cryptocurrencies like Bitcoin and Ethereum. But, despite its high-risk and high reward system, early Uniswap investors have had massive returns on investment (ROI).

Final Thoughts

Uniswap is a big player in the decentralized finance (DeFi) space. It’s the biggest decentralized exchange (DEX) in the market today – thanks to its massive growth and investments over time.

Uniswap’s UNI token has proven to be a valuable asset for its early investors. Though its price has significantly plunged from the $44.92 all-time high that it hit during its honeymoon phase in 2021, analysts believe the token can be a good investment for long-term holders.

The coin’s future depends on the success of the Uniswap exchange, and with the platform being a market leader, more investors and businesses will likely go bullish on it.

At the end of the day, whether the UNI coin is a good investment depends on you. Though there are high prospects, you shouldn’t depend on these speculations alone. Ensure you do your own research, seek expert advice, and determine how investing with Uniswap aligns with your needs.

Don’t forget that every investment is risky, and you should not invest more than you can afford to lose.

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