Although the announcement made noise throughout the network, it cannot be said that it was not expected. Last Friday, the SEC (the Securities and Exchange Commission of the United States), the US regulator in charge of ensuring control of the financial markets, decided to open an investigation to Uniswap Labs. Without accusing anything, for now, to the company, I wanted to understand how this company operated and, more importantly, your platform for buying and selling digital assets. And why did he need this right now? Although there is no official explanation, everything indicates that it is due to something very basic: its size has exploded in recent months to move more than 1,000 million dollars and it is the main champion of a movement that threatens to revolutionize the global financial system . This is the case of Uniswap and the so-called DeFi (decentralized finance).
The news jumped at the beginning of September with an information from ‘The Wall Street Journal’ in which it was explained that even though it is a striking movement, because the name of Uniswap has become one of the great warhorses of the crypto industry. ‘, it was something more than expected in the sector. The SEC itself had already begun to contact other similar platforms and even different movements within the regulator indicated that the institution was going to take another step in relation to DeFi. It was only a matter of time. His gaze is now focused on study the operation of an online exchange house that moves about 1,400 million dollars a day, that lists about 600 ‘tokens’, according to Coinmarketcap, and that has a special peculiarity that separates it from others such as Binance or Coinbase: it is fully decentralized.
To get an idea of its growth, at the moment, the invention of Hayden Adams and his about 37 employees who maintain the platform from Uniswap Labs moves the same volume of money, and even more, every day, which is traded, on average, in one day on the Spanish stock market. Some data that also attracts attention if we compare it with other of its more direct opponents such as Kraken. The centralized US exchange, which is on its way to being the first ‘crypto’ bank in use, or one of the first, has about 2,000 employees and moves about 1,600 million dollars a day, Uniswap equals its numbers with 2% of those human resources. As it does? With an intricate buying and selling mechanism and a decentralized listing that the United States is now investigating.
In case you do not know anything about this platform and, like the SEC, want to know about its operation, you should stay, summarizing it a lot, that it is an invention of Uniswap Labs and especially of its leader, Adams, who took the witness from Vitalik Buterin , creator of ethereum, but that works in a decentralized way. That is, there is no one who decides on the program itself, but it works in an automated way and monitored by thousands of nodes. Basically, Uniswap is an ‘exchange’, an intermediary, automatic in this case, between users. And it depends on something called ‘pools’ or reserves, which are filled with the ‘tokens’ that the users themselves decide to introduce into the platform.
Trade it at: https://t.co/7Sokz8jZfN pic.twitter.com/y3uLBaEY8X
– Osman Kuzucu Ⓜ️ (@OsmanKuzucu) September 2, 2021
Its protocol is supported by users who deposit the ‘tokens’ they have of the different cryptocurrencies that are in the market in pairs (for example, if you want to put ethereum, you must also put another with the amount that is to equal the value, such as Chainlink ) and run on the ethereum Blockchain. In return, this platform gives you automatically and signed in a ‘smart contract’ a percentage of interest. The longer you leave your ‘tokens’, the higher that interest will be. These coins go to the ‘pools’ with the aim that they can be bought and sold by other users and all the liquidity circulates. The sale also generates a series of commissions that either go to the pocket of the people who have put the ‘tokens’ in the platform or to the developers of Uniswap for the maintenance of the protocol.
A complex structure, but which, apparently so far, seems to convince many. Has already generated $ 1 billion in commissions for liquidity providers and in their pools there are cryptocurrencies blocked for a value of around 6,000 million dollars. His interest, at the moment, does not seem to decrease, since in recent days he has marked milestones such as having moved more than 2,500 million dollars in a single day.
@Uniswap just became the first protocol to surpass $ 1B + in fees 🤯
– Lucas Outumuro (@LucasOutumuro) August 10, 2021
So far, everything is adding up, but it also faces problems or risks as a decentralized entity. Being open, all kinds of coins of greater or lesser trust may appear on its platform, also ‘scams’, with more or less reliable projects that meet the requirements of the program, and the user must be aware of the risk that this implies. In addition, due to the volatility of the market, depositing your coins can also be risky, since even if you are not going to lose your money, they say, you can have negative interests and there is no way to stop the fall. And those are some of the reasons that concern fans of these types of ‘exchanges’ called DEX and the performance of the regulator.
Although Uniswap is the first and largest of its kind (its own coin, UNI, is 11th in the ‘ranking’ with a market capitalization of $ 24 billion), it’s just the tip of the iceberg of a much bigger market with names like Pancakeswap or Chainlink. Their strength is so great that they already generate a billion-dollar market with values that exceed 123,000 million dollars invested in it.
The tip of the iceberg DeFi
All these names and many more are part of the latest crypto world cry: decentralized finance. What is this? Taking the example of Uniswap, it is a new way of understanding the financial system with concepts such as decentralization and transparency, and whose objective is, or so its promoters say, to create a new ecosystem where this sector is more fair and efficient, taking advantage of technology. What’s more, some dream of ending such basic institutions as banks, large finance companies, lenders or insurers. All thanks to Blockchain and automation.
Although its explanation is much more complex and technical, the idea is that any process that must now go through a trusted third party responsible for a product can be automated with thousands of eyes watching and controlling transparency and good work of the program and its products. Thus, there is already talk of offering loans, mortgages or insurance through DeFi tools such as Uniswap itself.
Did you know that in DeFi there is the option of taking loans that pay themselves? In the same way that a house can generate passive returns equal to the amount of your mortgage, #Alchemix It allows you to take loans that are paid with the performance generated by your crypto assets. pic.twitter.com/gQVpcEuGA9
– Alberto G. Toribio (@gotoalberto) April 6, 2021
Real positive changes in people’s lives. https://t.co/4W7hmRY60z
– sheinix (@sheinix) July 12, 2021
The idea is that instead of having to go to a third party to ask for the money you need, you do it through one of these platforms and their ‘smart contracts’ with clear and immutable conditions and with a fully automatic process validated by all nodes that are part of the network. And the same with other products of this type. In addition, there will be tools such as the aforementioned Chainlink that will help the ‘smart contract’ to know when, for example, there has been a flood and the amount of insurance that a farmer has signed with one of these platforms must be released, without the need for experts or nothing like it. The problem, in all these cases, is the level of adjustment that these platforms need to be able to function.
Despite all these holes that the system raises, the first examples are already given in real life. For example, there is the case of an Australian software engineer who was able to pay off his mortgage at the Commonwealth Bank of Australia and refinance his loan through Notional Finance, a fixed-rate loan protocol based on decentralized finance. As explained in Cointelegraph, it was not easy for all audiences, but seeing the money that all these platforms already move, even regulators have already focused on them.
Although the announcement made noise throughout the network, it cannot be said that it was not expected. Last Friday, the SEC (the United States Securities and Exchange Commission), the US regulator in charge of ensuring control of the financial markets, decided to open an investigation into Uniswap Labs. Without accusing anything, for now, to the company, I wanted to understand how this company operated and, more importantly, your platform for buying and selling digital assets. And why did he need this right now? Although there is no official explanation, everything indicates that it is due to something very basic: its size has exploded in recent months to move more than 1,000 million dollars and it is the main champion of a movement that threatens to revolutionize the global financial system . This is the case of Uniswap and the so-called DeFi (decentralized finance).