Investors Burned by FTX... Turning to Decentralized Exchange Uniswap

On the 11th, trading volume neared 7 trillion won
Relatively safe from coin runs
Side effects include vulnerability to scams

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Lee Jung-yoon] In the wake of the FTX bankruptcy filing crisis, which has led to a collapse of trust in cryptocurrency exchanges, coin investors' interest in decentralized exchanges (DEX) is growing. Decentralized exchanges refer to platforms where transactions occur directly between investors without going through a separate intermediary exchange.

According to cryptocurrency market tracking site CoinGecko, as of 7:30 a.m. on the 24th, the daily trading volume of Uniswap (v3) was recorded at $843.1 million (approximately 1.1399 trillion KRW). This is about $300 million higher compared to $558.84 million on the 7th, when Binance CEO Changpeng Zhao declared the full liquidation of FTX-issued coin FTT, marking the start of the crisis. Four days after the incident, on the 11th, the daily trading volume surged to $5.20558 billion (approximately 6.9858 trillion KRW), an increase of about 9.31 times.

Uniswap (v3), which has the highest trading volume and holds a 37.7% market share, is particularly attracting attention. Its daily trading volume is more than twice that of Curve, the second-largest decentralized exchange by market share. Uniswap (v3) was launched in 2018. Unlike Uniswap (v2), it allows users to provide token liquidity within a specified price range during the token deposit process for swaps. This enables more efficient liquidity provision and reduces slippage, the phenomenon where the desired buy/sell price differs from the actual transaction price.

Uniswap is a decentralized exchange based on Ethereum. It is designed to facilitate exchanges with ERC-20 tokens, which are standards that meet compatibility requirements with Ethereum. There are different versions of Uniswap, such as Uniswap (v3), Uniswap (v2), and Uniswap (Polygon), each having separate liquidity pools.

In Uniswap, cryptocurrency suppliers deposit coins into liquidity pools and receive fees when trades occur. Additionally, the swap function allows direct trading without using already deposited coins. By linking personal wallets where coins are stored, such as MetaMask, Coinbase Wallet, or WalletConnect, users can utilize the swap function. In centralized exchanges, users must deposit coins into the exchange wallet before trading. This trading method enables transactions of cryptocurrencies not listed on centralized exchanges.

Since Uniswap involves trading with coins deposited in liquidity pools or exchanges between personal wallets, there is no order book recording buy and sell orders. Uniswap does not charge separate trading fees. However, users who provide coins to liquidity pools receive approximately 0.3% of the payment coin as a fee. Furthermore, Uniswap is known for its high gas fee efficiency when individuals trade coins directly. Gas fees refer to the charges paid to blockchain validators as compensation when conducting cryptocurrency transactions on the Ethereum blockchain.

Although decentralized exchanges are relatively safer from large-scale withdrawal incidents known as coin runs because they support peer-to-peer transactions without centralized intermediaries, risks still exist. Professor Hong Ki-hoon of Hongik University's Department of Business Administration explained, "There is no answer to how to prevent incorrect exchanges or fraudulent activities when trading without knowing the counterparty. Even if incorrect trades or fraud occur, there is no entity to manage or take responsibility for them."

This content was produced with the assistance of AI translation services.