Uniswap outperforms Coinbase for ETH trading

Uniswap, the decentralized smart contract-based exchange, officially surpasses Coinbase, one of the world’s most popular crypto exchanges, for trading in Ethereum. 

In the last 24 hours, Uniswap appears to be second only to Binance. 

The reason behind this is that, following the implosion of FTX, traders are flocking to decentralized exchanges (DEX). Uniswap is one of these and has grown overnight to become the world’s second-largest venue for Ethereum trading. 

Uniswap: why is it different from Coinbase (and others)? 

Uniswap is the largest decentralized exchange and the fourth largest among cryptocurrency exchanges by volume, used to trade ERC-20 and Ether tokens. Unlike the most common exchanges, including Coinbase, Uniswap uses a liquidity pool-based mechanism and its price is calculated according to a mathematical formula. 

That is: it uses an innovative concept whereby the price of traded tokens does not depend directly on supply and demand, but on a mathematical formula.

This caused Uniswap’s popularity to grow to the point that it surpassed even Coinbase as the exchange for Ethereum. The inventor of Uniswap, Hayden Adams, shared the news on Twitter yesterday, citing the analysis of Nansen CEO Alex Svanevik: 

“DEX starting to replace CEX? Total ETH/USD (or stables) volume: Binance: ~$1.9b, Uniswap: ~$1.1b and Coinbase: ~$0.6b.”

DEXs differ from CEXs because they allow customers to trade cryptocurrencies while retaining full control over their funds, unlike centralized platforms, providing a greater level of protection against withdrawal blocks or network outages.

At the time of the tweet, Uniswap had hosted more than $1 billion worth of Ethereum exchanges in the past 24 hours, nearly double the volume of Coinbase, the world’s second-largest centralized exchange (CEX) by total trading volume. 

The numbers have since declined, although Uniswap continues to beat Coinbase, according to CoinGecko data. Indeed, Coinbase currently accounts for $564,937,971 of Ethereum exchanges, while Uniswap accounts for $966.17 million.

However, Binance continues to be the clear leader in this category, with over $1.7 billion in all of its Ethereum trading pairs. 

Changes in the crypto world following the collapse of FTX

The recent collapse of the FTX exchange, in addition to causing significant market turmoil and crashing the price of other prestigious cryptocurrencies such as Bitcoin, has also increased Ethereum exchanges, and not only that. 

Indeed, all DEXs accounted for $31 billion of cryptocurrency exchanges in the last week, according to Dune statistics. Of that number, Uniswap alone hosted a whopping $20.3 billion in the same period.

The spike began last Tuesday, when many exchanges experienced an overnight doubling of exchange volumes, including Curve, which rose from $700 million to $1.3 billion. Uniswap exchanges more than tripled in that period. 

Specifically, on the same day, Binance announced that it had signed a non-binding agreement to save FTX for an undisclosed amount. Which, we know, later never happened, as Binance backed out stating that the situation FTX was in was too complicated to be handled by its control. 

Uniswap: the decentralized exchange and its history 

Uniswap was the brainchild of Hayden Adams after reading a post by Vitalik Buterin regarding decentralized markets and automated market makers. A mechanical engineering graduate at the time, Hayden decided to launch into smart contract development on Ethereum.

Thus, in late 2017, Adams launched the first prototype decentralized exchange that allowed the exchange of a single token. Within a few months, the project grew and Hayden, who in the meantime was still unemployed and living off some Ether he had previously purchased, added support for multiple tokens. 

During this time, Hayden met Vitalik Buterin, who helped him refine the concept and improve smart contracts. In late 2018, the first version was launched on the Ethereum mainnet and supported three tokens. Within two years, Uniswap becomes the decentralized exchange with the highest daily volume, transacting more than $200M per day. 

Uniswap differentiates itself by being a decentralized exchange. This means that a token and/or cryptocurrency exchange platform is built so that it is not operated by a centralized entity, but directly on the blockchain. 

Despite the fact that centralized exchanges, as opposed to decentralized exchanges, make it easier to transfer money from banks and credit cards to the crypto world and allow a large number of transactions to be handled, they actually introduce a vulnerability as they are prone to failure, shutdown, or fraud.

In contrast, decentralized exchanges are governed entirely by software on blockchain ensuring peer-to-peer transactions and superior resistance to censorship or failure. However, the number of transactions per second they can handle is a major limiting factor. In fact, the Ethereum network is currently nearly saturated because of Uniswap.