What Is Uniswap?

| November 17, 2023

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Uniswap

Uniswap protocol is among the most talked-about projects. You might be wondering what is Uniswap protocol. At its core, Uniswap enables you to trade and swap cryptocurrencies over EVM-compatible blockchain networks in a decentralized way without any intermediaries. This crypto project quickly gained traction and climbed up the charts within the last few years thanks to its straightforward user interface and transparency. As of 2023, the UNI token leads the defi market with approximately $3.9 Billions worth of total value locked and processes over $10 billion in weekly trading volume. 

Key Takeaways

  • Uniswap is DEX that lets you swap ERC-20 tokens using your favourite custodial and non-custodial wallet.
  • You can earn crypto-tokens by participating in liquidity mining pools.

Definition: What Is Uniswap?

Uniswap is a decentralized exchange (also referred to as Dex) deployed on the EVM-compatible blockchain. It essentially enables you to buy and sell cryptocurrencies. It allows you to swap ERC-20 tokens over EVM-compatible blockchains pseudonymously. Simultaneously, it allows you to deposit funds in liquidity pools enabling you to earn interest in the form of crypto-tokens for your participation. Using Uniswap’s platform, you can trade crypto-currencies literally from anywhere in the world, with anyone over the internet, without an institution or corporation, or government.

Attributes of Uniswap

Security and Safety:

The decentralized exchange platform provides top-notch security features to every single user. Additionally, your crypto-currencies are never pushed to any kind of third-party, external entity, or institution. Because no third party is involved in the transaction, your funds are not subjected to counterparty risk. You are not asked to trust your asset with any type of custodian service provider; every trade takes place on the decentralized platform. Uniswap enables you and your trading partner to transact directly from your own crypto wallet to another.

Borderless and permissionless:

You can trade with anyone over the internet, irrespective of their geographical location. There is no border restriction. You need an internet connection, a smartphone, and a crypto-wallet to become a part of the thriving defi ecosystem.

Pseudonymous and convenient:

You don’t have to log in with different sets of accounts in order to access the Uniswap platform. You don’t have to sign up for an account using your personal information either. Not sharing your personal detail help keep you pseudonymous over the network.

How does Uniswap protocol work?

Uniswap protocol mirrors the traditional crypto-exchange but in a decentralized fashion. It facilitates the purchase and selling of crypto-tokens using autonomous smart contracts. Smart contracts allow you to deposit funds as well as conveniently swap them with other tokens.

Let’s understand Uniswap’s smart contract infrastructure: An “Exchange” contract and a “Factory” contract are two main pillars of the Uniswap Dapp Platform. These autonomous smart contracts are general computer programs that are specifically built to execute certain sets of steps and function only when you meet certain pre-defined conditions. Both contracts are built to serve two different objectives. The Factory contract is essentially used to enable developers to add new tokens to the Uniswap platform. On the other hand, the decentralized exchange contract facilitates all operations related to cryptocurrency swaps (also referred to as trades). You can swap any form of ERC20-based tokens with another on the base Uniswap platform.

Uniswap V3 Dapp is deployed on top of EVM-compatible chains such as Ethereum, Polygon, Optimism, and Celo. What is EVM? EVM stands for Ethereum Virtual Machine. It is a program that compiles and executes the source code of smart contracts written by Dapp developers. It provides a run-time environment for a wider array of smart contracts that autonomously run on top of EVM-compatible chains. A particular section of the code gets executed only when every single node of the underlying blockchain protocol reaches a consensus.

What is UNI?

UNI is Uniswap’s native cryptocurrency. It is a governance token. It enables you to vote for key protocol transformation as well as make a significant impact on the overall ecosystem. Other than that, UNI helps maintain frictionless operations of the underlying Uniswap protocols. By owning a portion of the UNI token, you help UNISWAP become a self-sustainable, autonomous, completely decentralized protocol. But, to submit an improvement proposal to Uniswap, you are required to hold at least 1% of the cumulative UNI in supply. Liquidity pool contributors get rewarded with additional UNI tokens by the Uniswap platform.

Benefits of Uniswap

Compatible with most crypto-wallet:

With the Uniswap platform, you can connect any of your favorite crypto-wallet such as Liminal multi-sig wallet, Liminal-Trezor hardware wallet, MetaMask, and others. The Dex is compatible and functions seamlessly with all types of crypto-wallets.

Liquidity supply:

Liquidity is crucial for every decentralized crypto exchange. Usually, to successfully execute trades, a significant reserve of crypto funds is required to fulfill trade requirements. Decentralized exchanges that run low on reserves are not very useful or trade-worthy for a wider range of traders. In fact, liquidity providers don’t participate in liquidity pools with relatively low reserves. This is not the case with Uniswap. Uniswap is massive from a trade volume standpoint. It ranks at the top in terms of total value locked with the Dapp. According to DefiLama, Uniswap Version1’s TVL is approx. $8M, Version2’s TVL is approx. $1.08B, Version 3’s TVL is approx. $2.72B. If you are a trader, Uniswap can provide you with ample liquidity to trade funds. And, if you are a liquidity provider, then supplying liquidity to Uniswap shouldn’t be a hassle for you.

Participate and earn in liquidity mining:

The underlying Uniswap protocol is an automated liquidity protocol that incentivizes participants actively trading over the exchange to resolve trades and become liquidity providers. In other words, each and every liquidity provider pool their crypto-currency holdings together in order to provide a collective fund that can be utilized to support trades that takes place on the Uniswap platform. There are dedicated liquidity pools for each of the tokens listed over the Uniswap Dex. Individuals and institutions that deposit their holdings into pools are termed liquidity providers, and the entire operation is referred to as liquidity mining. The underlying algorithm works out the incentivization structure and exchange price for every liquidity provider. The incentives are equally distributed among all the liquidity providers.

Convenient User interface:

A number of defi protocols, such as Dexes, have improper and clunky user-interface. Bad user-interface results in a poor user experience and a significant drop in user engagement. This is not the case with Uniswap. Uniswap’s smart user-interface design choices significantly contributed to its massive success. Because the UI is straightforward, you don’t have to navigate a lot to understand the application and get your job done. You’re just required to connect your favorite crypto-wallet, that’s all; now, you can swap your crypto-token holding for another set of crypto-token or opt for a liquidity pool.

Conclusion

Uniswap is a trustworthy and transparent crypto-project. It is open-sourced, meaning anyone with questions and doubts can visit the source code to better understand how it functions. It is built to support a specific crypto-trading activity, which is critical for a broader range of crypto-users. With Uniswap, you can swap crypto-tokens in no time.

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More on Crypto

As we continue constructing a fully regulated digital asset custody platform, ensuring secure storage for both crypto and fiat assets remains a critical priority. 

To facilitate the last checkpoint of enabling institutions to convert their digital asset treasury into fiat currency, we’re expanding beyond pure wallet infrastructure and integrating seamless fiat off-ramp capabilities for our partners.

We’re thrilled to announce our partnership with Encryptus, licensed and compliant off-ramp solutions tailored for institutional clients. This collaboration elevates Liminal’s service offerings by empowering our partners to convert their digital asset treasuries into fiat currencies efficiently.

Integrating A Seamless Off-Ramp Solution

The digital asset ecosystem historically faced friction points when transitioning between fiat and cryptocurrencies. Off-ramp solutions address this pain point by enabling efficient and streamlined conversion between asset classes, minimising value loss and simplifying compliance processes.

Here’s how off-ramp changes the game:

  • Reduced Friction: Frictionless conversion minimises delays and operational complexities associated with traditional fiat-crypto exchange methods.
  • Enhanced Efficiency: Streamlined workflows expedite asset conversion, increasing speed and cost-effectiveness for institutional and individual users.
  • Optimised Value Preservation: Advanced off-ramp solutions prioritise minimising price slippage and value loss during conversion, protecting user portfolios.
  • Simplified Compliance: Integrated compliance features navigate regulatory complexities, ensuring adherence to relevant financial regulations.

With our partnership with Encryptus, we have embedded their institutional-grade APIs, connecting their off-ramp solution within Liminal’s wallet and custody platform. 

This integration simplifies our clients’ liquidation requirements while keeping their assets secure and more:

  • Effortless Digital Asset to Fiat Conversion: Our partners will be able to access treasury management and facilitate business payments in 54 countries and individual payments in an extensive network of 80+ countries.
  • Streamlined Compliance and Regulation: Our partners will be able to leverage Encryptus’s rigorous licensing and compliance framework, ensuring adherence to stringent financial regulations.
  • Enhanced Platform Value: We will be able to expand the functionality of the Liminal custody solution, attracting institutional users seeking comprehensive digital asset management capabilities.

Moving Towards A Robust Off-Ramp Partnership With Encryptus

The partnership between Liminal and Encryptus earmarks a significant step forward in secure digital asset custody, representing a shared commitment to pushing compliant practices while supplying institutions with easy access to convert their digital assets to fiat. 

For Encryptus, the opportunity to integrate with Liminal’s established platform presents a chance to reach a wider audience and scale their innovative off-ramp solutions to new heights. By streamlining fiat conversion within Liminal’s secure custody infrastructure, Encryptus gains access to a trusted network of institutional users seeking seamless and compliant treasury management.

For Liminal, this collaboration reinforces our dedication to partnering with companies that demonstrably prioritise clear governance and robust policy frameworks. By aligning with Encryptus’s stringent compliance standards, we reaffirm our commitment to building a secure and sustainable future for digital assets, where trust and regulatory certainty go hand-in-hand.

January 22, 2024

Hello world, it’s that time of the month when we share the biggest security breaches in the world of Web3 through our Security and Regulatory Newsletter. 

Liminal believes in optimizing security and custody practices globally across the Web3 industry. Through our Newsletter, we highlight security, regulations, and compliance incidents that have happened in the past month and how one can follow better Security practices to safeguard their digital assets. 

We will also highlight regulatory changes that might have happened globally, which were significant to the overall ecosystem.

Dive in and get a detailed analysis of everything security and regulation in the domain of web3 with Liminal’s Monthly Security and Regulatory Newsletter.

Web3 Security Compromises in January

Abracadabra exploited for almost $6.5 million, Magic Internet Money stablecoin depegs

The Magic Internet Money ($MIM) stablecoin has lost its dollar peg again, dipping all the way below $0.77 in a flash crash before returning to around $0.95.

The depeg appears to be related to an exploit of the Abracadabra lending protocol, which allows people to borrow $MIM. An attacker exploited an apparent flaw in the platform’s smart contracts to drain around $6.5 million.

Goledo Finance hacked for $1.7 million

Goledo Finance, an Aave-based lending protocol, was exploited through a flash loan attack. The attacker stole assets estimated by CertiK to be around $1.7 million.

Goledo Finance contacted the attacker to offer a 10% “bounty” for the return of the remaining assets. In a message on January 29, the attacker wrote: “I hacked Goledo and want to negotiate.”

Socket service and its Bungee bridge suffer $3.3 million theft

The Socket cross-chain infrastructure protocol was hacked for around $3.3 million in an attack that exploited its Bungee bridge. The thieves were able to exploit a bug that allowed them to take assets from those who had approved a portion of the system called SocketGateway.

A little over 700 victims were affected, and the highest loss from a single wallet was around $657,000. 121 wallets lost assets priced at more than $10,000.

On January 23, the protocol announced they had recovered 1,032 ETH (~$2.23 million) of the stolen funds.

Web3 Regulatory Practices for January

The EU Imposes Stricter Due Diligence Rules for Crypto Firms

On Jan. 17, the European Council and the Parliament came to a provisional agreement on parts of the Anti-Money Laundering Regulation (AMLR) that now extends to the crypto sector.

Under the new rules, cryptocurrency firms will be required to run due diligence on their customers involving a transaction amounting to €1,000 ($1,090) or more. 

However, the agreement isn’t final yet as it has to be first officially adopted by the Council and Parliament before the rules can be applied.

So, after the EU passed its landmark MiCA regulation last year, which clarified rules about cryptocurrencies, regulators are now targeting the space with tighter controls. 

While these regulations bolster security and trust in the crypto market, potentially attracting more cautious investors and combating financial crimes, they also present challenges. 

The US State of Virginia Introduces Digital Assets Mining Rights

Recently, the Virginia State Senate introduced Bill No. 339, which outlines regulations for the transactions and mining of digital assets and their treatment under tax laws. 

The legislation exempts individuals and businesses engaged in crypto mining activities from obtaining money transmitter licenses. Additionally, it protects miners from any discrimination. 

Issuers and sellers of crypto are also exempted from securities registration requirements if certain conditions are met. Moreover, those offering mining or staking services are not to be classified as “financial investment” but must file a notice to qualify for the exemption.

The bill further incentivizes crypto’s use for everyday transactions by offering tax benefits. Under this, up to $200 per transaction can be excluded from an individual’s net capital gains or gains derived from using crypto to purchase goods or services, starting from Jan. 1, 2024.

Key Takeaways:

  • Hackers continue to exploit vulnerabilities in DeFi protocols and cross-chain bridges, highlighting the need for robust security measures.
  • Regulatory frameworks are evolving rapidly, with stricter AML rules and supportive legislation for emerging technologies like crypto mining.
  • Staying informed about these developments is crucial for navigating the digital assets market safely and responsibly.

Stay #LiminalSecure

These events highlight the constant evolution of Web3 security and regulation. You can confidently navigate this dynamic landscape by staying informed and prioritizing security best practices. 

At Liminal, we’re committed to empowering institutions to unlock the full potential of digital assets without compromising security or compliance norms with our robust custody and wallet infrastructure solutions. Join us on this journey towards a safer, more accessible future for digital assets.

January 15, 2024

Buckle up as we’re about to take a trip down memory lane. 

The year 2023 was a wild ride that showed signs of a plummeting market, groundbreaking innovation and regulatory hurdles. 

Contrastingly, in the same year, we saw no market-shattering crashes. Financial institutions extending an olive branch, key jurisdictions unlocking the doors to blockchain technology. 

Simultaneously, at Liminal, we experienced significant breakthroughs, re-engineering our positioning and becoming a pioneer in digital asset security with bank-grade custody. 

We took major strides this year, right from building comprehensive products to becoming a qualified custodian, from revamping our brand design to expanding our offices in newer locations, from partnering with hyper-local communities to onboarding a diverse set of clients,  we did it all. 

So, let us take you through everything we accomplished in 2023 and what the future holds.  

Liminal Became A Qualified Custodian

One of the prominent moves we made this year was to change our positioning as a regulated custodian from being a wallet infrastructure platform. 

We got two licenses in key jurisdictions to operate as a regulated custodian. 

The first one came from Hong Kong, where we acquired the TCSP license issued by the SFC, which oversees and regulates financial activities to ensure compliance with legal and regulatory obligations. 

Our next license came in the MENA region, where we got In-Principle Approval for the FSP license granted by the FSRA, a governing body in ADGM, to establish a progressive financial services environment. 

Both these licenses paved the way for Liminal to push its wallet infrastructure and offer bank-grade custody to institutions looking to operate in these particular regions. 

Liminal Introduced A Suite of Products & Features

Continuing our building spree, we launched new products and integrations to broaden the existing infrastructure and added more parameters of security, scalability and sustainability. 

Staking-as-a-Service

Liminal launched staking for institutions to eliminate the risks involved in running staking nodes and the vulnerabilities in hot wallet transfer. 

Hence, we introduced an industry-first mechanism of cold wallet staking to ease staking for institutions and secure assets explicitly.  

Whitelabel Solution

Accelerating the go-to-market time for organisations looking to build a secure and customisable application, Liminal launched its whitelabel solutions

Targeted to help organisations meet security standards, manage assets with maximum control, and add their custom branding to give it a personal touch. Our whitelabel solution is a first-in-class custodian-developed solution for institutional grade custody.

Smart Consolidation

We are building not just secure custody but also automation-based features to eliminate manual errors, increase the throughput of transactions and scale institutional wallets. 

Taking this ahead, we launched the Smart Consolidation feature to automatically calculate all the active addresses and consolidate them into a single address. With this level of automation, managing multiple addresses becomes uber easy for wallet teams. 

Travel Rule 

To limit the use of cryptocurrencies for activities like money laundering and terror financing by regulatory bodies, travel rule was mandated for institutions to follow. 

Continuing the latest compliance integration policy, Liminal partnered with Notabene to introduce Travel Rule, enabling institutions to manage counter-party risk and extend the process of due diligence right from the Vaults dashboard.   

Liminal Accured List Of Security Certifications

Following our ISO certification for data privacy and risk management, we added two new security certifications to fortify our systems and build trust for our clients. 

Liminal Achieves Crypto’s Highest Security Mark: CCSS Level-3 Certified

Cryptocurrency security lacked a gold standard, creating a vulnerable ecosystem. Enter the CryptoCurrency Security Standard (CCSS), setting the bar for auditing and certifying custodian infrastructure and establishing levels of trust and confidence for investors. 

Liminal became only the second wallet infra platform and the first regulated custodian to be accredited with Level-3 certification, deeming wallets, transfer environments, workflows and engines safe and secure. 

Liminal Reciueved SOC 2 Type II Certification

To tackle threats in institutional-grade security, organisations’ SOC has been identified as the primitive compliance standard for service organisations to handle customer data.

Liminal successfully attained SOC 2 Type II certification, validating its setup of security controls & compliance processes to be industry standard. 

Liminal Level Up

Liminal unveiled its most significant platform upgrade ever, revolutionising the future design standard of a qualified custodian. This level-up activity included revamping our website and product UI, giving a completely new look and feel to not “Liminal” but “Liminal Custody”. 

The Liminal level-up activity was a strategic step and the biggest one for us this year to create an intuitive, inviting and tailored experience for our clients. 

Liminal Reached New Borders

We spread out our operations this year, reaching new borders and onboarding a new wave of institutions across gaming, DeFi, HNI wealth, treasuries, and exchanges! From Indonesia and Africa to India, UAE, and Korea, we are setting up custody operations worldwide. 

This isn’t just a roster of clients; it’s a network ready to spark connections, collaborations, and shared success to further the definition of secure assets. 

Liminal Collaborated With Law Enforcement Agencies

The best and the proudest moment of Liminal for this year was when we collaborated with CBI & Himachal Prashesh police department to aid them in seizing digital assets. 

This partnership put us on the map, as we became the first point of contact for LEAs in India, and we standardised the process of secure seizure of digital assets. Leveraging our expertise, we enabled a safe space for officers to learn the basics of custody, contributing to a safer digital landscape.

Team Liminal Grew Bigger

Building such a massive infrastructure, prioritising security and compliance over everything else, we had to grow the team to build at pace and expand at an even higher level. Not only did we grow in team numbers, but we also elongated our footprint to new destinations. 

Team Liminal went from 32 to 70 with 5 new offices in Mumbai, Ahmedabad, Hong Kong, Singapore and ADGM, setting up our custody operations steadfastly. 

What’s To Look Out For In 2024

We are excited to announce that our commitment to integrating the most secure digital asset wallets with a cutting-edge custody platform is swiftly becoming a reality. 

The upcoming year, 2024, will serve as a testament to this transformative journey. Moving beyond self-custody, we are constructing a comprehensive infrastructure encompassing both custodial and non-custodial wallets. Exciting products are set to launch starting from the first week of January, some of which are: 

  • Official Custody Platform Launch
  • Liminal’s Off-Exchange Settlement Hub
  • Secure Custody of Real-World ‘Tokenised’ Asset

The Web3 space has evolved explicitly this year, pushing the narrative of secure digital asset custody and security, introducing new regulations and compliance standards, licensing VASP providers and standardising the use of custodians as a trusted third party. 

At Liminal, we took major strides this year, from building comprehensive products to becoming a regulated custodian, from revamping our brand design to building the full infrastructure of custodial and non-custodial wallets.

January 5, 2024

Find Out How You Can Benefit From A Fully Self-Custodial Wallet Architecture