Today, we’re talking uniswap, how to use it, what it is, what the risks are, how to navigate that ecosystem.
Anything that you do in trading is risky. And a lot of these Dex’s where there’s basically zero regulation are even more risk. I mean, it is it’s a Wild West ecosystem. It gives you access to a whole lot. But you have no guarantees of anything. When you trade on a place like Uniswap, you are interfacing between typically Ethereum and a smart contract. There’s no guarantee of what’s behind that smart contract, what’s in that smart contract unless you audit everything in it.
New tokens are listed all the time. You can lose all your money because people can mint new coins and still essentially just burn the whole book of liquidity and take everything out. They can put a loophole in the smart contract. They can just disappear. There’s so much that can be done. But at the same time, we’re seeing an enormous influx of activity, attention and fun stuff going into this world because it truly is new and interesting. And there’s been a lot of work going into it.
We’re seeing right now three hundred million dollars of liquidity on just the Uniswap protocol, not to mention all the other ones, almost over two hundred million dollars in twenty four hours of volume, just on Uniswap on some days.
So it is truly catching on because there is access and this is not financial advice. This is not telling you what to do. This is not giving you legal any legal insights in terms of what you can or should do or what these tokens have done for their regulatory presence, which is basically none for a lot of them. So be very careful with what you’re doing. What I want to do is show you how I’m looking at this ecosystem, some tricks that I’ve picked up in terms of how to get around more quickly, because sometimes speed is a really important part of all of this.
And I’ll also dig into some strategy. So let’s get started. If you know about trading, you know about Crypto, but you’re not really sure about the Uniswap side of things. You’ve mostly use centralized exchanges like Coinbase and Binance and Bittrex and all those. This is going to be a helpful video for you. If you don’t know anything about Crypto, I’m probably going to go above your head a little bit. I apologize. There are other good videos for getting introduced to Crypto itself.
What we’re talking about today is trading and your strategy on a place like Uniswap or other Dex’s. There’s competing ones coming out already for a variety of good reasons. OK, so let’s dig in. What I like to do first is use something as kind of a home base for where I’m navigating stuff I like. Uniswap dot info also have a beta site that’s new, but it’s not really fleshed out all the way yet. When you’re on the home page here, you see the liquidity on the left hand side and the volume on the right hand side.
Then they’ve got top tokens and top pairs. So let’s first talk about what some of this stuff means.
You don’t have an order book when you’re using something like Uniswap. You have liquidity pools. Liquidity pools are significantly different because essentially someone is putting up fifty percent of each. Typically, there’s other ones. There’s evolutions happening here. But in order to provide liquidity for a token so that people can come in and buy or sell, what you might do is have a token. Let’s say it’s Synthetix and you have to put up whatever amount of Synthetix. So let’s say one Ethereum worth of Synthetix.
Well, you also have to put one Ethereum into the liquidity pool and now you’re funding the liquidity pool. Fifty fifty and you’re providing liquidity for other people to come buy and sell and you’re earning fees. This is a novel concept. And essentially as those buckets get in balance, then it forces the price up or down to incentivize people to do other things. There are some risks here. A lot of people don’t know what chainlink does and what it is.
But one of the things that’s really driving the value of link is the oracles and how these oracles work within these automated market maker, which are what drive these pools. There are tons of things that happen here. This is straight on Chainlink blog. But what we want to show is essentially the the way these pools work and the way these automated market makers work because it is significantly different than what happens on an order book, on a typical exchange where there’s just depth in the order book, there’s no real depth.
what the phenomenon is, is essentially when you’re providing liquidity in the liquidity pool, you’re basically going to lose money because of impermanent loss and the way that this thing operates. So then what people are doing is they are establishing incentives for people to pool in addition to the fees themselves, which don’t really make up for it. So what happens is when it gets out of balance, because someone comes in to this 50 50 pool and they’re like, OK, well, I want the token and I want therefore they’re adding Ethereum and they’re taking out the token.
The pool gets imbalanced. And then essentially people who are doing arbitrage between these pools and centralized exchanges or anywhere else that manages a pool that’s not being affected in the same way they’re able to arbitrage this stuff.
So the arbitrage arbitrage folks are really winning in this scenario, in the liquidity pool providers, they’re getting the fees, but essentially they’re their underlying tokens are are kind of losing on a net basis. Now, if you sit in there long enough, things are going to balance out. You’re just not going to take advantage of the arbitrage. And unless, of course, someone comes in and they take it all in, essentially the liquidity runs out and all of a sudden you feel you’re basically out of your position and liquidity dries up.
This article on Chainlink (https://blog.chain.link/challenges-in-defi-how-to-bring-more-capital-and-less-risk-to-automated-market-maker-dexs/ ) just has a lot of stuff about, you know, how impermanent lost works and the risks of that. So know that if you do provide liquidity there, there are risks in terms of, you know, putting your tokens in there. And the best way to provide liquidity is when you’re actually yielding something due to it. So some of these marketplaces, some of these smart contracts, they will actually allow you to yield farm because you are pooling.
So because you’re providing your tokens and you’re providing liquidity in the ecosystem, you’re participating. You actually can yield a reward. And that reward itself may have value. It may have a role of governance in the ecosystem for this token, et cetera. In addition to all of that, the whole automated market making thing is evolving as well. So there’s a lot going on in this space.
But that’s basically the essence of how it works. And the effect of what you have there is you end up with a whole lot of Ethereum and whatever else is making up these pools, like Dai or USDT or whatever else, those tokens are getting locked in to the pools.
And therefore, you know, they’re kind of out of the circulating supply when they’re essentially participating as a provider of liquidity for people trading. So some of the stuff you want to look at or what’s the overall liquidity on the pair for a token I’m looking to buy, what’s the volume of that? And kind of how does this all work together? Because if a token doesn’t have a lot of liquidity, you can really affect the price by going in there and buying it up and.
What we’re seeing that’s great is that a lot of these have a ton of liquidity. So let’s look at Meta (MTA), for example. Now, when you’re on Uniswap dot info, it’s giving you this Token Safety Alert because they’re not guaranteeing what you’re what you’re able to do here.
A token like Meta has three million dollars of liquidity right now and 24 hour volume has been one point six dollars million with three million dollars of liquidity. You can honestly get in and out of Meta pretty nicely. So you’re here. How do you trade it when you’re trying to get into the stuff? You might see people saying, like, yeah, what’s the contract address and some things like that. What I like about Uniswap dot info is actually that they have buttons for me to essentially do the important things.
So if I’m on a token, if I find a token up here in the URL, it’s the actual contract address and then you can go look it up on ether scan or whatever. But on this landing page, it gives you some idea of the chart.
It shows you the liquidity, the volume, the number of transactions over the past twenty four hours. And then it gives you the top pairs. And when you’re trading in or out of one of these, you want to participate in a pool that’s being funded essentially. So the top pair is Mta/ Eth and there are six million dollars of liquidity, one point six million and 24 hour volume. And you can see the recent transactions and all of this stuff is on the Ethereum chain.
This is what is causing so much activity on this Ethereum. And if I want to trade this, then I would click the button that says trade. So let’s do that. And this takes me to the Uniswap exchange, the Uniswap dot org app.
Price Impact on Uniswap
And they make this very simple because essentially you have a from an A to and it’s going to based on what you do, is going to adjust, you know, what you’re buying or selling. So if I flip this arrow that turns me into a buyer and I can say I want one Ethereum worth of NTA and it says, OK, you’re going to get an estimated 57,6 MTA and here is your price per MTA. Here’s the minimum.
So it’s essentially giving me a guarantee based on slippage and adjustments in price between when I get this estimate versus when I execute, because again, this is all on chain. I have to submit a transaction to the Ethereum network. Here is your price impact. This is important. I’m only going to have a point zero one percent impact on the price, which is basically nothing. And then the liquidity provider fee is point zero zero three Ethereum. So that is what these liquidity pool providers are doing now.
The bigger the liquidity pool, the less impact I’m going to have. And that’s all the better because I don’t want to have an impact. So let’s say, OK, I’m going to buy 1000 Ethereum worth of MTA. Well, in this scenario now, I’m going to have an impact of 10,76 percent and that is a big deal.
So I’m going to push the price up and it’s giving me that warning on when I buy MTA. Now, you may think, oh, well, I’m never going to do that. I’m never going to buy a thousand Ethereum of something. Well, there are other token small caps and newly listed things. Stuff just doesn’t have as much liquidity. And maybe you’re one Ethereum purchase is going to have an eleven percent impact. And you need to be cautious of what impact you’re having on this overall token and the pool when you buy and use that in your calculations.
Now, if you click this gear up here, you can actually set your slippage tolerance. So you can say, you know, I don’t want to ever have more than a one percent impact in intelligence that when it calculates it for you and try to prevent you from having too much of an impact, you may set that as much as like five percent.
If you honestly if you set it more than about five percent, especially with some of these low caps, it’s going to start throwing you warnings and it’s going to say, hey, your transaction may be front run. Now, we don’t want to be a front runner. We don’t want to be front runner in any transaction. We don’t want to have that impact. Essentially, it’s giving you a notice to say you need to be careful.
Noncustodial Nature of Decentralized Finance
All right. So what am I actually trading on here? It says connect to the wallet. And actually, the way that works is you’re going to connect to something like metamask. And so what you would do is you would install metamask in your browser. Now you can transact directly with your hardware wallet. And what’s great about this is now you’re trading you’re able to trade with in a completely noncustodial manner.
And this is honestly is fantastic because you’re not at the risk of whatever the exchange has going on. You keep your keys, you keep your coins, and you’re transacting directly with the automated market maker, these contract addresses. And other traders and a noncustodial fashion, which is really cool and for certain types of trading, I think this really does have a future as long as we can maintain this type of great liquidity for a lot of these tokens. And honestly, some of these pools are like empty that I showed are more liquid than the counterparts on centralized exchanges.
OK, so what we’ve done now is we’ve we’ve checked out Uniswap dot info, we’ve used it to find our avenue to trade, we’ve set up our wallet and then we can make our trade.
So let’s say we buy that one Ethereum. You have to connect the wallet on here and then you would confirm it and then you would get your MTA and it would show up in your wallet. So now it’s on your Ethereum address, just like everything else.
And you got an understanding now of the of the automated market maker and the risks of a permanent loss.
Let’s talk about if you were to actually add liquidity and be a liquidity provider. So if I want to do that, then if I go to this MTA Ethereum pair now this is the pier itself. So it’s telling me, here’s the price of one MTA. Here’s Ethereum. Here’s this pull over time. So it’s giving me some metrics and I want to participate so I can click add liquidity. And what it’s doing is it would look up how much MTA and Ethereum I have and essentially allow me to select the minimum amount of either one so that it’ll be a 50 50 value.
And I can now participate in this pool, add the liquidity and then I’ll be a percentage of the overall pool. So if let’s say we had sixty eight MTA and that’s our one Ethereum, I’m going to be zero point zero one percent of the pool. But let’s say we were that Meg and we had a thousand Ethereum. Well I’m going to be eleven point five nine percent of the pool and now I will earn a percentage of the overall fees for other people trading in this ecosystem.
I’m adding liquidity to this ecosystem in this pair, which makes it more attractive for other people to trade in it. You have to be aware of those risks. But sometimes I might actually yield from these things.
When you add liquidity, though, you actually are sending your tokens to the pool and you’re receiving LP tokens, liquidity pool tokens in an in place of that.
So you get these Uniswap V to Univ to tokens. So that’s what’s going to be your liquidity pool tokens. And then people essentially, depending on the project and everything else like you, may stake those LP tokens. You may just receive the yield yield a token because you have those LP tokens. There’s all kinds of different ways to to do the whole DeFi farming thing. So you just want to consider that when you’re wondering whether you should participate in a pool, see what incentives they have, see what that community’s got going on and see what they’re doing, et cetera, et cetera.
Uniswap DeFi Ecosystem
All right. Let’s talk about actually how do you navigate the rest of this ecosystem? Because one of the things is these uniswap tokens, they don’t have charts or places like trading view . So you actually have to use custom resources. Now, the one that I like the best is Uniswap.vision, uniswap vision purely because it’s fast. So this is a trading view interface, but I’m building out there, building out their own candle data and I find that this one shows the the price updates faster.
It’s just where I can chart stuff. Unfortunately, this one doesn’t have tons of support, so there’s not a whole lot of tokens that I can get on here. However, it is fast and that’s a nice advantage. You can also go to chart X, dot pro, chart X, dot pro and that’s a another one is the same exact thing. Except the difference here is it’s just not not near as fast or responsive
So I have a harder time trying to chart on this one. However, this support, I think just about any coin that’s on Uniswap dot info or wherever it’s pulling that data from. So you can pretty much chart it on Chart X if it exists. But for the ones that Uniswap vision supports, I much prefer uniswap vision.
Another thing, in addition to the the direct uniswap interface, there are other places where you can trade and one inch exchange, one inch terrible name, by the way, dot exchange. This is a interface to be able to do swaps and you can actually have essentially it pulls pairs together. So even if there’s not a pool for exactly what I want to trade, like, let’s say I want to go from into a and I want to go to.
Let’s say Zamp, so I can say I have let’s do our sixty eight MTA, it’ll tell me, OK, well I’ll get twenty two thousand.
And Zamp, you start with this, you get this and it pulls the different Dex’s together and allows it to choose what’s best and it’ll say, OK, well you’ll get it from the one inch exchange or the Uniswap exchange or the zero x relay. And here’s the effects on that. And similarly, you connect your wallet and you go, yeah, you got to have fun. So this allows you to essentially use a different tool and take more steps.
And one just be aware of like the fees and the stuff that you’re going to deal with. Sometimes this is actually cheaper. And then also one inch is coming come out with Uniswap, which is a Uniswap clone, but they attempt to fix some of the issues, especially from like a fee perspective and things like that. One other thing one inch has is you can attempt some limit orders here. So if you want to say, you know, don’t you know, I don’t want to buy until it hits a certain price, you can do that from one end or you can always try to do that.
I don’t I don’t know that it’s got 100 percent success rate, but you can give it an attempt. And that’s one of the things you don’t have in the typical uniswap setups is it’s really hard to do things like limit orders or other things that you take for granted and centralized exchanges. And that’s the type of technology that these decs tools are really going to start to improve over time.
All right. So let’s talk about actually looking out for tokens and trading these things.
What are some of the things that we should look for? I don’t think you’re going to find like the best stuff to trade.
Finding Good Opportunity on Uniswap
Like, just go and looking at the top tokens. So what you really want to do is you want to look out, see what’s what what are people talking about? What are the new listings on uniswap? What makes them interesting? What’s the liquidity look like? What’s the volume look like? And you really got to stay plugged in. Most of these are going to have telegram channels where people are participating in the conversation and you can see like what’s happening.
What is this project actually doing? And then blending that with how the liquidity and how’s the community and how’s the house, the chart? Can I get out of this? Because what you don’t want is the liquidity to completely go away. And then I can’t exit and generally just trying to play it safe. So I’ve been using MTA as an example because it has great liquidity. You can get in and out, but it’s still a relatively small cap.
And if you go here and you go through what’s on this DeFi system, you can you can find out like, OK, what’s something I’m interested in.
Look through what’s going on here, what’s the market cap, what’s the volume, what’s the community like? And you can kind of dig in to these ecosystems and find what’s the next thing that I think is interesting enough to take a trade and take a position in. And then beyond that, I’m really interested in what is what is going to be like the future of trading in this space.
Future of Uniswap
And I think that the Uniswap stuff is fascinating because there is instant access for anybody in the world. There’s no regulatory component because it is just individual investors and traders interacting from their Ethereum wallets directly to a token contract. And there is no middleman. So it’s noncustodial, there’s no regulatory limitation because Uniswap Uniswap itself is a protocol. The app that I’ve been showing you is a is a website. A team runs that. But even if that goes away, the Uniswap protocol is code.
It can’t be deleted. It can’t be you know, there can’t be a regulatory component that strips it away and tells you you can’t do this anymore unless your jurisdiction tells traders, hey, it’s illegal to participate in this or something. And I don’t know that that’s going to occur. So what we have is something that’s extremely accessible and at least on certain tokens, there’s a ton of liquidity, access everything else. And we’re going to continue to see stuff be built out around this.
And that’s why I’m really fascinated by it. I want to see where it goes. But you got to know the risks. You got to know how to approach this. Be cautious. Don’t go all in stuff. Don’t Fomo. Yeah, just be careful. Use your brain.
But if you use your brain, there are opportunities in this market and I am really interested in what what we can see start to develop.