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What is Uniswap?
Created in 2018 by Hayden Adams with $100,000 in funding, Uniswap is a decentralized cryptocurrency exchange (DEX) that runs on the Ethereum blockchain and allows anyone to exchange ERC20 tokens.
Uniswap seeks to solve the liquidity problem of decentralized exchanges and achieves this by allowing its users to exchange tokens without relying on buyers and sellers to create that liquidity.
Here’s a quick look at how it works and how to mine Uniswap to earn your UNI tokens.
It is interesting to know that, in its beginnings, Uniswap did not have a business model capable of bringing revenue for its creators and, in fact, it was put on the Ethereum platform for public use. In 2020 it launched its second version (Uniswap V2) and has currently launched its third version (Uniswap V3).
UNI: the native Uniswap network token
In September 2020, Uniswap launched its second version and its own governance token, UNI, with an airdrop in which it gave away 400 tokens to each wallet address that had interacted with the Uniswap protocol before September 1.
UNI is not distributed through a token sale, but rather the token is distributed to users who participate in the network and provide liquidity to eligible markets in Uniswap.
Uniswap plans to distribute a limited total of UNI 1 billion over four years, with 60% earmarked for distribution to the community, 21.5% allocated to Uniswap employees and the remaining 18.5% going to investors and advisors.
As a governance token, UNI entitles holders to vote on how the protocol is run. This means that only UNI holders can vote on changes to the protocol related to:
- Use of UNI’s community treasury
- Changes in the protocol fee
- eth ENS
- Default list of Uniswap and SOCKS liquidity tokens.
How to mine UNI?
If you haven’t yet read the full guide to Uniswap on the Bitnovo blog, it’s important to know that the distribution of UNI tokens occurs through liquidity mining and not through mining as we traditionally know it in cryptocurrencies like Bitcoin.
Liquidity mining, also known as yield farming, works like this:
Decentralized exchanges (DEX) need liquidity to function. Users holding tokens are the ones who provide funds or liquidity (LP) to the DEX. DEXs reward and reward users who enable their operation with their capital.
In other words, by simply leaving our funds locked in one of the decentralized platforms, we are contributing to their operation and, in return, we can earn commission rewards on one or more tokens ( ex. UNI) and generate passive income by leaving our tokens in a liquidity pool.
- By depositing liquidity into a pool, unique tokens known as liquidity tokens are created and sent to the liquidity provider’s address as a reward for their contribution to a pool.
- Each liquidity provider will receive an amount of tokens proportional to the liquidity provided to the pool.
- In addition, when a transaction is completed, a 0.3% fee is applied to the sender of the transaction. This fee is distributed proportionally to all LPs in the group upon completion of the transaction.
- To recover the underlying liquidity, plus accrued fees, liquidity providers must “burn” their liquidity tokens, effectively exchanging them for their share of the liquidity pool.
So, if you want to earn passive income from Uniswap, you just have to access Uniswap DEX and connect one of the wallets listed on the platform.
Uniswap allows users to connect their wallets directly to the exchange.
So, if you want to start contributing to the Uniswap network and provide liquidity, just connect your wallet to the platform by clicking on ‘connect to a wallet’ at the top right.
You will be presented with a list of supported Uniswap compatible wallets.
At the moment the supported wallets are:
- Coinbase Wallet;
Once your wallet is connected, you are ready to earn your UNI TOKENS.