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Dapp of the Week: Uniswap v2

Posted by
Jon Jordan

Uniswap v2 is the second iteration of Uniswap and includes many improvements and new features

Ever since it launched in 2019, Uniswap has provided the simplest way to exchange Ethereum-based tokens. 

Even the interface is simple. Just connect your wallet and then select which tokens and how many you want to swap. 

Compared to the graphical spaghetti offered by most decentralized exchanges, no wonder Uniswap quickly became one of the most popular Ethereum dapps

Frontend simplicity drives adoption

But blockchain innovative never stops and making a good experience even better is the reason that Uniswap v2 has launched

Aside from the different color schemes, the UI is very similar. But there are some subtle changes under-the-hood that are worth discussing. 

However, before we do so, it’s important to note that Uniswap v1 remains live and isn’t going away anytime soon. Indeed, in the near future, it’s probably better to continue using it as it has deeper liquidity pools and is more robust as it’s been live for a longer period of time.

Uniswap V2 2.0 Video Review

Liquidity pools are one of the key changes in v2. It sounds complex, but a liquidity pool is just some tokens a user has put into the Uniswap smart contract, which enables it to work.

For example, if I want to swap some ETH for some MKR, then someone needs to have locked some ETH and some MKR into Uniswap to enable this. The reason people do this is to earn a very small transaction fee of 0.3% charged for each transaction. These fees are shared between everyone who has added liquidity, providing a passive income.

Flexibility

In Uniswap v1, users adding liquidity always had to provide ETH and another ERC20 token but in v2, you can now provide liquidity using two ERC20 tokens; ETH is no longer required. This seems like a small change but provides much more flexibility.

Other changes include the ability to use liquidity pools to create flash loans. Popularized by the Aave protocol, flash loans mean users can access high values of any ERC20 token in Uniswap cheaply, as long as they immediately pay them back. Again, this seems very obscure but it’s important to enable greater functionality in the wider DeFi ecosystem

Finally, Uniswap v2 has better price oracles, which ensure the prices of tokens in Uniswap are more accurate and harder to manipulate. 

There are other smaller improvements, which you can read about on the Uniswap blog

And remember all DeFi dapps are experimental and come with risk. Never lock up more value than you’re prepared to lose if something should go wrong.

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