The first iteration of cryptocurrency trading when Bitcoin was created in 2009 was peer to peer trading. Trading partners would meet in a physical location where they would trade cash for cryptocurrency. LocalBitcoins was a prominent platform to orchestrate these trades, however, trading partners began using alternate payment methods, like Paypal, for Bitcoin. Those who used alternate platforms later realized there was inherent “chargeback risk” in accepting Paypal payments for irreversible payments like Bitcoin, creating the need for a second iteration of cryptocurrency trading.
The second iteration of cryptocurrency trading was in the form of Cexes (Centralized Exchanges) like Coinbase, Kraken, Gemini, etc. These exchanges accepted multiple forms of payment: debit card, wire transfer, ach transfer and conducted trades on an orderbook where they would match sellers and buyers. However, Cexes were plagued with problems like social engineering attacks, sim swapping, and server problems, never mind users not being able to sign up for accounts during the bull run of 2017, crypto users not passing KYC/AML, and account closures for innocuous actions. The cryptocurrency space was in dire need of a third iteration of cryptocurrency trading, but there was not enough adoption for Decentralized exchanges with orderbooks.
The third iteration of cryptocurrency trading is where Uniswap comes into play. Uniswap is an iteration of cryptocurrency trading that allows users to trade any ERC-20 asset they want without orderbooks, having to make an account, passing kyc/aml, server problems, spoofing transactions (exchanges who fake their volume), risk of sim swap attacks or hacking risk. This third iteration of cryptocurrency trading is made possible by “liquidity pools,” assets provided on demand by liquidity providers in exchange for a 0.3% fee. A Uniswap liquidity pool is made up of two assets, with 50% of each asset in the pool. The most common makeup is 50% WETH (ERC-20 token of Ethereum) and 50% of another token.
In conclusion, the progression of crypto trading has created the opportunity for Uniswap to provide a seamless experience for crypto users. While it is now easier than ever to trade crypto with liquidity pools, atomic swaps, the fourth iteration of crypto trading, are on their way to maturity, so be on the lookout as more of these swaps enter the ecosystem.
By Jacob Stelter
Disclosures: Not investment advice. It should be assumed that Sarson Funds or its affiliated managers hold positions in all projects that are discussed. It is not possible to invest in any project directly through Sarson Funds, Inc. or its affiliated managers. Any investment product offered by managers affiliated with Sarson Funds should be assumed to be only available to Accredited Investors and subject to the individual terms and conditions of that offering including but not limited to those eligibility requirements associated with U.S. Securities Regulation D, section 506c. Talk with your financial advisor before making any investment decisions or have them contact Sarson Funds directly at [email protected]
