Even in the United States, 25% of households are unbanked or underbanked. That said, you wouldn’t imagine developed nations to have issues with access to financial tools and markets.
This is where cryptocurrencies like Bitcoin and Ethereum play a considerable role. They supply secure access in an immutable, decentralized fashion. In fact, decentralized finance is playing a role in reducing underprivileged populations.
The role of cryptocurrencies in fighting corruption and lifting oppressed markets is changing the world.
Have you been hearing a lot about unicorns, sushi rolls, and green tea and getting confused? If you’re ready to finally come to grips with decentralized finance, we’ve got you covered.
Keep reading to find out!
Instruments of Centralized Currency Exchange
For this explanation, we should go back to 2009 and the emergence of Bitcoin. It was a technology with great potential but a high barrier-to-entry, despite its hope to enter every home.
Some tools weren’t yet available for DeFi (decentralized finance) to finally kick-off. It took years to use cryptocurrency to buy real goods – even longer before people could figure out how to trade tedious fiat currencies with cryptocurrencies.
Back in 2011, formal centralized exchanges brought decentralized cryptocurrencies to the masses. It started with Kraken and now-defunct Mt.Gox and later with 2012’s entry of CoinBase.
These formal exchanges centralized Bitcoin and Ethereum but gave an on-off ramp for fiat currency and cryptocurrency to interact in the real world. Though, centralizing these decentralized currencies “broke the system” and opened up security issues.
Mt.Gox had a fault with its wallet system that allowed for theft. CoinBase has successfully permitted access to the crypto-sphere for PayPal, Dell, Dish Network, Expedia, Overstock, Braintree, and Stripe customers. As a service, CoinBase has been very fruitful for crypto in general.
All in all, centralized exchanges bring unnecessary irony and complexity to decentralized cryptocurrencies.
Enter: Decentralized Finance & Currency Exchange
Those early exchanges served to promote and grow cryptocurrencies from their initial state of bartering. But there needs to be a better solution. This solution needs to adhere to the values and ideals of the decentralized currencies they serve, such as being:
- Easy to use
If these tools are easy to use, they will be accessible to many users around the world. That means that whether someone is in Asia, Africa, Europe, or the Americas, they are on level playing fields. It means lending networks and systems that span and operate across the globe seamlessly.
These tools being immutable means a central figure can’t shut it down, censor it, or take it over. These protocols mean they can access a global financial system that goes beyond anything history has served up before. At least, as long as the individuals can get around government-placed censorship and access restrictions.
Security means that as long as there is internet access to reach the network, their private keys and money are safe from bad actors. Neither can their identities. Crypto has moved far beyond brain wallets by this stage because of a lack of security.
What can cover all these bases?
DeFi and the Rise of DEX
There are many different decentralized exchanges or DEX, but ahead of them all is Uniswap. The total locked value of Uniswap as of writing is $2.64 billion, up from $230 Million on August 28, 2020. An increase of over 10x!
Why is DeFi, and Uniswap specifically, exploding in value?
Uniswap gets its name from combining unicorns and “token swap.” Ethereum has a fantastic advantage for use-case over Bitcoin. Bitcoin is a pure cryptocurrency with a single client, which is excellent as a specialized currency and store of value.
Ethereum acts as a currency but also has ERC20 to create smart contracts. Uniswap is a series of smart contracts that create a trading protocol for swapping ERC20 tokens.
Because smart contracts are applications built on the decentralized blockchain, they’re called dApps or decentralized apps. This makes it easy to work within the Ethereum ecosystem and verifiable on the blockchain.
Why Uniswap Is a True Unicorn
Uniswap is designed and built as an automated market maker that uses the x*y=k formula between two tokens. Inspired by Vitalik Buturin’s blog and the ideals of Ethereum, Hayden Adams created Uniswap.
Uniswap is a true community-driven project. They released its governance token, UNI, to facilitate a vote-by-value system. This release on September 16 is an essential reason for Uniswap’s massive growth and stability.
You can determine the value of your vote on Uniswap by taking your UNI tokens and dividing that by the remainder of the pool. While developers, investors, and others hold a substantial share of the tokens, it is written into the smart contract that they cannot hold more than the combined initial governance of 39.379%. There are only 1 billion tokens, which will take four years to completely distribute.
Over the next ten years, the level of “centralized” governance goes down to 32.82%. While it’s enough to start a vote and give it some sway as developers, the community is in true control of the trading protocol’s direction.
Since the UNI token was launched and Uniswap gave proof of its commitment to immutability, security, and ease of use, its value locked in on liquidity pools has skyrocketed. However, Uniswap’s ease and design help encourage long-term use – without relying on “pump and dump” tactics.
Not the Only Exchange
Uniswap is not the only DEX available, and it’s not the only AMM, either. It is, however, a protocol that adheres to decentralized exchange better than a centralized exchange. Security relies on an individuals’ own level of wallet security and doesn’t hold onto your money for you like a centralized exchange.
SushiSwap is a failed takeover attempt by a bad actor, Chef Nomi. It’s almost stalled and died while Uniswap continues to thrive and flourish.
Why? While it isn’t the only DEX in town, Uniswap doesn’t only talk about love for its community; it proves it – through action.
In a time when everyone is trying to run off with their money, Uniswap is handing out 400 UNI (worth a little more than $1400) to anyone who ever traded on the protocol. Successfully or not.
However, Uniswap is the beginning. Every exchange gives different values for the trades between tokens. For that reason, there’s a service called Matcha, on which you can compare the exchange rates on over 15 DEX exchanges.
Why DeFi is Necessary & Desirable
DeFi is something a lot of people want for the sake of anonymity. Centralized exchanges must give their users’ info to the IRS if they trade more than $20,000. Obviously, this is a red flag in a community centered around decentralization.
DeFi is necessary for the health of the Ethereum network. It allows for an on-off ramp of funds into the network. Earlier this year, Uniswap was successful in performing higher daily volumes than its centralized counterparts.
If you have a “stablecoin” based on pegging a token’s value to a real fiat currency, you’re probably looking for a way to trade to something like a governance token or a dApp. Some examples of stablecoins are DAI, USDT, USDC, and Paxos. Uniswap allows its users to create an exchange between two tokens.
It’s done without buyers or sellers, but instead using liquidity pools, and it’s flawless x*y=k formula implementation.
Exchange Is Only the Beginning
Other than DEX, there are several other extremely beneficial DeFi tools in the toolbox.
These tools build on and strengthen each other. Because Ethereum is a smart contract that you can link a real-world asset to, stable coins are used to give value to the contract.
The amount of value in these DeFi contracts is currently estimated at nearly $11 billion, separate from ETH’s value as a currency.
In this DeFi environment, you can create smart contracts that are guaranteed to trigger as conditions are met. This allows for peer-to-peer lending. Asset management frameworks pool their resources together for investment.
Even more interesting is the interlacing of Bitcoin and Ethereum using smart contracts for WBTC or Wrapped Bitcoin. A one-to-one token for using Bitcoin in Ethereum (tradable on Uniswap)!
Are You Ready to Dip Your Toes In?
Decentralized finance seems confusing and scary to a lot of people. But, in reality, it’s an opportunity for equal financial footing for anyone in the world.
Projects like Swapfolio are not trying to reinvent the wheel but to generate wealth on a professional level by giving you premier tools that interlock with the Uniswap protocol. Swapfolio believes in listening to the community and giving back. Track your tokens and your history, along with building community and gaining real financial rewards on staking with the community using the SWFL token.
Swapfolio makes it easy. We’re with you for every step of the journey.
Want to know more? Join the Uniswap community! Shape the future of DeFi along with Uniswap and Swapfolio!