Uniswap Is Killing Centralized Exchanges

Published on

Uniswap is killing centralized exchanges. And good riddance to these rent-seekers. They’re the biggest pain point in crypto. They de-anonymize you. They make you beg for your money or they lose it. It disgusts me.

Get The Full Series in PDF

Get the entire 10-part series on Charlie Munger in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Q3 2020 hedge fund letters, conferences and more

If you’re unaware, Uniswap is a decentralized exchange built on Ethereum. It is an automated liquidity protocol on which no centralized entity can stop your trade. You can swap ERC20 tokens to your heart's content, unhindered. It’s open-source, too, with all the code on GitHub.

Uniswap: The Biggest Order Book For Ethereum

The biggest order book for Ethereum right now is Uniswap, and it's ready to trade. It is true of many other coins, as well. That’s a game changer. Anyone can deposit and become a liquidity provider or automated market maker on there.

Imagine in Bitcoin if there is a Bitcoin Foundation. And now imagine that foundation had a grant program, and imagine it had a grant for creating a distributed exchange on chain with no sign ups no AML, no KYC, no order book, no market makers. It is just automatic and instant. Imagine someone took the grant, built it, had it audited, released it, and then it does a ton of volume everyday. That’s Uniswap.

Bitcoin has none of that. Ethereum does. The Ethereum Foundation had a grant and Hayden Adams accepted the challenge. If you want to get out of Bitcoin, you must submit AML or KYC to somebody or operate below some threshold (say, 2 BTC per day), operate in dark markets, or peer to peer. On Ethereum, you can transact as much as you want privately without ever leaving the blockchain. The functionality doesn’t stop there.

Uniswap lets you be a market maker. You make 0.3 percent. If you are a trader, and you place a bid that shifts the market against you, Uniswap warns you against the slippage. What other exchange warns you? None. They are happy to see you wick the book and screw yourself. Exchanges are businesses. They don’t care whether you make money or not. They care if you submit trades. They make a commission off each trade. They provide a platform and wait for you to deposit money. They take your private information and then you run the risk that they lose that information and someone steals your identity. That tells you a lot about the state of the centralized market.

Additionally, most of these exchanges buy their technology from the same company. They’re white label exchanges. They make some CSS changes and tada. That’s why they look and behave the same. Uniswap solves the scourge of the centralized exchange by leveraging the Ethereum chain.

Trading Without Slippage

When you trade on Uniswap, you know what price you will get. There is no slippage. Tools like Uniswap.info showcase the buys and sells, and how coins are performing versus other coins on that exchange. On Pools.FYI, you can see every single trade in the form of bubbles. Very cool tool. The bigger the bubble, the larger the trade. Green bubbles are buys, red bubbles are sells. The transparency on Uniswap is unrivaled.

The biggest strength of cryptocurrency has been its power to decentralize finance. Yet, the industry has run into the arms of centralized middlemen, which serve as a point of convenience. But, they also service as a central point of failure. The future of cryptocurrency exchanges is decentralized exchanges. Uniswap has so far set the standard for how this should be achieved. Centralized exchanges are scared for their lives because of decentralized exchange technology like Uniswap, and they should be.

Disclaimer: The author of this article does not have any affiliation with Uniswap.

About the Author

Richard Heart is a self-made millionaire and serial entrepreneur with startups in consumer electronics, marketing and finance. He is an unrelenting thought leader in the blockchain and cryptocurrency space and founder of HEX, the world's first blockchain time deposit and high interest blockchain certificate of deposit. Every day HEX stakers earn interest. HEX stakers make additional interest when people end their stakes earlier or later than they committed to.