In brief

  • Uniswap has gone from 90,000 visits in June to 1.42 million in July, according to Messari.
  • In the same period, trading volume has increased by seven times, from $6.2 million to $43.7 million.
  • An explosion of interest in DeFi is behind the rise, but the figure is still a fraction of the trading volume enjoyed by major exchanges.

Uniswap, the most widely used decentralized exchange (DEX) on the Ethereum blockchain, is enjoying unprecedented growth thanks to exploding interest in decentralized finance (DeFi) over the past month.

“Uniswap went from 90,000 visits in June to 1.42 million in July,” Eric Turner, director of research at crypto analysis startup Messari tweeted today.

In fact, Uniswap saw record-setting growth during the past month by multiple counts, according to Messari. Between June 20 and July 20, trading volume increased by seven times, from $6.2 million to $43.7million.

On July 27, aggregated trading volume reached $120 million, and the exchange saw “nearly day-over-day growth” of liquidity provided to the platform, said Messari in a blog post

Automated market maker

Uniswap is not an exchange in the traditional sense. Instead it’s a protocol, manifested by a series of smart contracts on the Ethereum blockchain. 

The DEX eschews the traditional order-books used by most exchanges. Instead, trading prices are decided by a deterministic algorithm, an “automated market maker” (AMM) which automatically sets and balances the value depending on how much demand there is.

Any ERC20 token can be traded on Uniswap. Rather than setting the price you want to buy or sell at, you contribute, or “pool” an amount of both Ethereum’s token ETH and a token which you are willing to either buy or sell. 

Uniswap’s AMM balances out the value of tokens and the swapping of them, based on how much people want to buy and sell them. Pool contributors are rewarded with fees for each swap —which, in theory, helps the market stay more liquid.

Alongside Uniswap’s rise, other AMMs, such as Curve and Balancer have exploded onto the scene, each with its own specialized pricing function.

The competition

A new version called Uniswap V2 was released in May which allows for pricing oracles, cheaper transactions, more diversification by liquidity providers, and increased resistance to attacks involving “flash loans”—where users borrow and return funds before the transaction is stamped into a block. 

The feature was highlighted by Ethereum founder Vitalik Buterin (who inspired creator Hayden Adams to develop Uniswap).

While Uniswap’s growth is impressive, the figures involved are still tiny when compared to centralized exchanges, which, according to Messari, trade a total of $5.83 billion in a single day.

But fuelled by DeFi promises of bumper yields, many prefer to trust an open, decentralized protocol over a centralized system, and the permissionless nature of the protocol allows anyone with an Ethereum address to become a liquidity provider and earn fees. 

Dope idea or not, in the past month, a rapidly increasing number of people think it’s worth a look.