Cover Product Spotlight: Compound Finance
A spotlight article on Compound Finance with its features, financials, & security record.
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A spotlight article on Uniswap, the upgrades from V2 to V3, and other key points.
Cover policies are available for users of Uniswap v2 from the Prime dApps diversified cover pool and for users of Uniswap v3 from the Popular DeFi Apps diversified cover pool; both pools are available on the Ethereum chain as well as on Arbitrum.
Hayden Adams founded Uniswap on November 2, 2018. Uniswap is the largest decentralized exchange (DEX) protocol if one combines 24 hour trading volumes on Ethereum and Arbitrum chains. It uses the Constant Product Market Maker algorithm in an Automated Market Maker (AMM) model to set prices for crypto tokens in its exchange.
Uniswap uses liquidity in its smart contract to facilitate crypto transactions on its platform. Investors known as liquidity providers (LPs) contribute or pool a pair of crypto tokens like USDT/ETH to serve as liquidity; this pooled liquidity is then locked in a smart contract. Instead of P2P trading, traders using the platform for exchanges trade against this pooled asset at a price algorithmically set by the smart contract.
When LPs contribute their assets to the Uniswap pool, they are issued LP tokens, which will be used to redeem their assets from the pool. LPs earn interest on their assets from transaction fees charged to platform traders. These interests are shared among LPs concerning their ratio of assets in the entire pool.
The Ethereum Foundation is a non-profit organization that supports the development of the Ethereum blockchain. It was founded in 2014 and has since become a major player in the crypto industry, with its technology being the foundation for many emerging technological advances based on blockchain.
Uniswap enables users to trade various cryptocurrencies without intermediaries or order books. Instead, it utilizes an automated market maker (AMM) model, where liquidity providers (LPs) add assets to pools, which are then used to facilitate trades. Liquidity providers deposit funds into these pools and are rewarded with trading fees for their contributions. The price of each asset in the pool is determined by an algorithm that balances the supply and demand of the assets. This means that the price of an asset on Uniswap is determined by the market, rather than a centralized authority.
As with other DEXs, trading on Uniswap is permissionless, meaning that users do not need to complete registration and provide KYC (know your customer) information, meaning that user information is not stored or at risk from theft.
Uniswap has recently released version 3 of its protocol, which brings several significant improvements over its predecessor, version 2. One of the main differences between the two versions is the introduction of concentrated liquidity. In version 2, liquidity providers had to provide equal amounts of both assets in a trading pair to the pool. In version 3, they can choose to concentrate their liquidity around a specific price range, which allows for a more efficient use of capital. This means that traders can get better prices and lower slippage when trading on Uniswap.
Another significant improvement in version 3 is the introduction of multiple fee tiers. In version 2, all trading pairs had a fixed fee of 0.3%. In version 3, liquidity providers can choose between different fee tiers, ranging from 0.05% to 1%. This allows liquidity providers to optimize their returns based on their risk tolerance and the volatility of the assets they are providing liquidity for.
Version 3 also introduces an oracle optimization that enables Uniswap to provide more accurate prices for assets with low liquidity. V3 oracles are capable of providing time-weighted average prices (TWAPs) on demand for any period within the last 9 days. This removes the need for integrators to checkpoint historical values.
The gas cost of v3 swaps on the Ethereum mainnet is slightly cheaper than v2.
According to data from Crunchbase, Uniswap has raised a total of $176M in two rounds of fundraising, with lead investment coming from Andreessen Horowitz (a16z). This significant investment has helped Uniswap to develop its platform and expand its offerings.
In a major move on June 21, 2022, Uniswap acquired Genie, an NFT marketplace.
Uniswap’s native token is UNI, which also serves as its governance token. It was created in September 2020 and, in April 2023, ranked 22nd with a fully diluted market cap of approximately $5.3 billion, according to CoinMarketCap. According to the same source, 58% of the tokens are in circulation out of the 1 billion maximum supply.
Uniswap Labs has a strong presence on social media platforms. Its official Twitter account has over 1 million followers and regularly posts updates about new features, partnerships, and community events.
Uniswap also has an active presence on Discord and Reddit, where users can connect with each other and the team behind the project. Overall, Uniswap's social media presence is an essential part of its community-building strategy and helps to keep users informed and engaged with the project's developments.
Uniswap has gone through a number of security audits, conducted by ConsenSys, ChainSecurity, Trail of Bits, ABDK Consulting, and many other security audit firms.
On April 18, 2020, an attacker utilized a known reentrancy vulnerability to exploit Uniswap on the imBTC liquidity pool. The attack was possible due to the implementation of the ERC777-compatible transferFrom function, which included a callback mechanism that allowed a malicious actor to hijack the transaction and perform bad operations before the actual balance was updated. The total amount of stolen funds from the attack is about 1,278 ETH.
On July 11, 2022, about $12.9 million was lost to a phishing scam that promised users a free UNI token airdrop. The adversary siphoned crypto assets from users' liquidity pool tokens through a fraudulent smart contract after asking them to connect their wallets and sign to claim the airdrop. The signing translates to giving the adversary approval and control over their assets. This attack didn't affect the Uniswap protocol smart contracts; however, one wallet user lost more than $6.5 million in assets, while the other lost roughly $1.68 million.
Uniswap also has a bug bounty program where responsible bug disclosure can help white-hat hackers earn a reward of up to 2,250,000 USDC.