A liquid market enables individuals or groups to quickly buy and sell assets. Decentralized platforms can struggle to execute trades when their platform does not have much liquidity for a specific token. Newer tokens or tokens with limited supply are most often the least liquid because there might be an imbalance of buyers and sellers. You can’t sell token A for price X without a consenting buyer on the other end.
The company Uniswap is a decentralized protocol for creating liquidity and trading ERC-20 tokens on Ethereum. Uniswap encourages users to be “liquidity providers” whereby they pool their assets into funds that enable people to complete trades without an opposite party. Instead, they swap against the liquidity pool created by the liquidity providers. Every swap incurs a small fee, which is distributed proportionately to liquidity providers when they decide to pull their funds. Uniswap prices coins based on the simple formula x*y=k.
In this episode we talk with Noah Zinsmeister, engineering lead at Uniswap. Noah also maintains web3-react, a framework for building blockchain applications. We discuss cryptocurrency liquidity, the Ethereum blockchain, and how Uniswap is building a community of liquidity providers and traders.
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