What is the Uniswap protocol?
Traditional financial services and exchanges are centralized, meaning that an intermediary (for example, a bank) manages the exchange process and custodies the consumers’ assets on their behalf. In response to the risks and operational challenges posed by custodial exchanges, the crypto community invented decentralized, non-custodial exchanges. These exchanges don’t require you to relinquish access to your cryptocurrencies and are governed, in part and increasingly so, by their communities. Uniswap is one of the top DeFi protocols currently on the market, having grown significantly since its launch in November 2018 by founder Hayden Adams.
Uniswap is a so-called “automated market maker.“ Instead of an exchange composed of an orderbook on which traders buy and sell crypto (which is how most crypto exchanges operate), Uniswap lets you swap cryptocurrencies by leveraging its algorithmically-managed liquidity pools.
Uniswap’s algorithm automatically swaps tokens through these pools to get the best price. For instance, if you wanted to swap ETH for AAVE, Uniswap would reroute your token from ETH -> WBTC -> USDT -> AAVE. Notably, while this process is designed to be cost efficient, any exchange relying on ETH will run into high gas fees, or at least until Ethereum improves its mining process.
While Uniswap is non-custodial, meaning that it never takes control of your assets and does not request any personally identifying information about its users, the founding team and a small team of coders were, until recently, in control of the platform and dictating its development roadmap. But that changed in the autumn of 2020, when Uniswap launched its eponymous token, UNI, and created its own decentralized governance framework.
What is UNI?
UNI is a so-called “governance token,” meaning that those holding the tokens can use them to vote on proposals to upgrade the network. Part marketing drive, part loyalty reward, the Uniswap team decided to airdrop 15% of all UNI tokens to a little more than 50,000 addresses. That amounted to about $2,800 shortly after launch when its price peaked to $7 on September 19. Its price then dipped, but in January 2021 hit highs of $15. That meant that anyone who had received those 400 UNI tokens would have $6,200 in their pockets.
Uniswap’s team claimed 21.51% of the tokens, investors another 17.8% and a further 0.69% to advisors (with vesting periods.) The rest of UNI supply will go to Uniswap’s “governance treasury,” a community-run chest distributed according to the wishes of those holding UNI.
However, it’s very expensive to suggest a vote (you need 1% of the total UNI supply to submit a proposal, and most of the community needs to be on your side to pass the proposal.)
As of May 2021, UNI has a market cap of over $22 billion and around $1.2 billion of the token is traded on crypto exchanges each day, according to metrics site CoinMarketCap. That makes it the 11th largest token by market capitalization (but this ranking changes often as the DeFi sector matures.)
Before trading any crypto assets it is important to understand the risks. This overview is a starting point for you to perform your own research prior to investing in a crypto asset.
No securities regulatory authority or regulator in Canada has evaluated or endorsed the Crypto Contracts or any of the crypto assets made available through the platform.
Wealthsimple has performed an assessment of whether UNI can be supported by Wealthsimple’s platform, including whether UNI is a security and/or a derivative and is being offered in compliance with securities and derivatives laws.
We evaluated Uniswap based on publicly available information, including (but not limited to):
- The creation, governance, usage and design of Uniswap, including the source code, security and roadmap for growth in the developer community and, if applicable, the background of the developer(s) that first created Uniswap;
- The supply, demand, maturity, utility and liquidity of UNI;
- Material technical risks associated with Uniswap, including any code defects, security breaches and other threats concerning Uniswap and its supporting blockchain (such as the susceptibility to hacking and impact of forking), or the practices and protocols that apply to them;
- Legal and regulatory risks associated with Uniswap, including any pending, potential, or prior civil, regulatory, criminal, or enforcement action relating to the issuance, distribution, or use of the UNI; and
- Statements made by regulators or securities regulatory authorities in Canada and other jurisdictions regarding whether UNI, or generally about whether the type of crypto asset, is a security and/or a derivative.
Wealthsimple monitors ongoing developments related to crypto assets available on its platform for significant changes that may affect Wealthsimple’s original assessment of those assets, including Wealthsimple’s assessment of the application of securities and derivatives laws. Any significant changes relating to UNI may result in changes to this Crypto Asset Statement and/or Wealthsimple’s ability to support UNI.
Like all other crypto assets, there are some general risks to investing in UNI. These include short history risk, volatility risk, liquidity risk, demand risk, forking risk, cryptography risk, regulatory risk, concentration risk, electronic trading risk and cyber security risk. Please review the Wealthsimple Crypto Product Risk Disclosure for additional discussion of general risks associated with the crypto assets made available through the platform.
We emphasize that this Crypto Asset Statement is not exhaustive of all risks associated with trading Uniswap. Investors should perform their own assessment to determine the appropriate level of risk for their personal circumstances.
Wealthsimple is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decision Re Wealthsimple Investments Inc. dated December 18, 2023 (the Decision).
The statutory rights of action for damages and rescission in section 130.1 of the Securities Act (Ontario), and, if applicable, similar statutory rights under securities legislation of other jurisdictions of Canada, do not apply in respect of this Crypto Asset Statement to the extent a Crypto Contract is distributed under the prospectus relief in the Decision.
Last updated: January 1, 2024