The Uniswap (UNI) protocol is an innovative decentralized finance (DeFi) platform built on Ethereum (ETH). Hayden Adams, the creator of UNI protocol, had one thing in mind when designing the DEX: community.
UNI allows anybody holding ERC-20 tokens in an ETH wallet to execute exchanges for any token with liquidity: all of this is made possible without any involvement from a centralized or third party. Recently, with the UNI governance token, every user who had interacted with the protocol before September 1st was eligible to receive a whopping 400 UNI tokens – equivalent to nearly $2,000 at the time!
Everybody likes free money, but with the “crypto-stimulus” issued by UNI this past September, many find themselves asking questions. You may even be one of these people yourself.
So, does Uniswap even make any money?
Uniswap is designed for the people
UNI was created, in many ways, to act in the interest of the public. Because trades, aka swaps, happen without the need for an order book, liquidity providers create what are known as liquidity pools (LPs).
These LP’s are the bane of UNI’s continued success – without them, ERC-20 token swaps on the UNI protocol would not be possible, as there would be no available liquidity for any of the assets currently listed.
In typical markets, while liquidity is provided by individuals placing orders to buy or sell on a centrally operated order book, participants looking to provide liquidity are known as market makers.
Unlike UNI’s decentralized protocol for automated liquidity provision, traditional market makers must actively monitor their orders and update them continuously in response to fluctuations in the marketplace.
Does Uniswap make any money?
In the beginning, UNI did not make any money. When UNI first launched, it was nothing more than a De-Fi protocol at the time without a native token of its own. All fees went to liquidity providers, and none of the founders received a cut from any of the trades executed.
Currently, there is a small transaction fee paid out to liquidity providers – 0.3% per trade. By default, these are added to the LP, although liquidity providers can redeem them at any time. Fees are distributed proportionally to the % of liquidity in the LP provided.
Over time, a portion of fees became dedicated to the future development of UNI. The UNI team has already deployed an improved version of the UNI-V1 protocol, called Uniswap v2.
So, does Uniswap make money?
No!
Barring fundraisers, UNI does not make any money – any monetary gain potentially made through liquidity provision fees by founders are put back into improving the protocol!
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