Contributor, Benzinga
June 21, 2022

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Of all decentralized exchanges (DEXs), Uniswap is the most popular, with over $5 billion in assets locked up; its governance token UNI holds a market cap of just over $2.5 billion, according to CoinMarketCap

When the lending and borrowing exchange Celsius froze all transactions, many began to wonder whether their digital assets were being held by trustable entities. 

Uniswap is a permissionless exchange protocol on Ethereum. Uniswap does not have custody any of its users funds, so a Celsius-type event is not possible. Despite this, you need to be aware of general precautions when it comes to getting started with decentralized finance. 

Unlike the typical exchange, Uniswap operates 24/7 as an automated market maker (AMM), using its liquidity to provide users with service around the clock. This open and automated system is largely able to operate on its own, and the limited governance it does require is operated by a decentralized autonomous organization (DAO).

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How is Uniswap Secured? What is UNI Token?

Uniswap uses the ERC-20 standard to operate its governance token UNI. The ERC-20 is a type of token on the Ethereum network, so the security of the token and DAO depend on the security of Ethereum. While Etheruem has held up well to this point, it is an ever-evolving ecosystem. The upcoming Ethereum Merge presents a number of risks, meaning that overlapping dangers to the Ethereum ecosystem could affect Uniswap.

Beyond the relationship between the chains, Uniswap founder Hayden Adams and Ethereum Co-founder Vitalik Buterin are friends. The two are colleagues through Ethereum development, with much of the inspiration behind Uniswap coming from Buterin.

While over 300,000 DAO members help to secure and govern Uniswap, crypto faces security risks. However, Uniswap has continued to show great decentralization, innovation and staying power in this marketplace.

Risks of Investing in Uniswap’s Governance Token, UNI

The key risk of investing in Uniswap is the extreme market volatility seen over the past few weeks. This trend can cause panic to cash out, and if exchanges are illiquid they could be unable to pay back their users. 

Along with the recent market selling pressure and liquidity risks, Uniswap has many competitors such as SushiSwap, PancakeSwap, and Aave. When it comes to DEX competition, key aspects are the amount of liquidity, trust and quality of user interface. Uniswap has delivered on each of these aspects so far, making it a fairly safe bet for a crypto investment.

Is Uniswap Safe?

Uniswap as an exchange has proven safe. It holds a treasury of over $1.5 billion in assets, helping to ensure liquidity. Adams is held in high regard in the crypto community. Unlike many projects, Adams is a public figure, with his reputation in part backing the exchange.

As far as the token goes, many like the coin, as Uniswap has proven successful and has a high ceiling for growth. Rocky market conditions and strong competition are dangers to be noted when calculating the safety of the token.

Where to Invest in Uniswap’s Governance Token, UNI

You can get UNI from a classic centralized exchange, like Coinbase Global Inc. (NASDAQ: COIN). If you are supporting the decentralized ethos you may as well get it straight from the source, through the Uniswap exchange. With a non-custodial wallet, you can easily get set up and start trading UNI along with a long list of other coins and tokens.

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Uniswap Hacks

While no notable hacks of the Uniswap exchange have been reported, UNI tokens have been stolen from wallets. Another issue is when users forget their keys or password, losing their UNI forever. Owning your keys comes with its own set of risks and taking precautions is of utmost importance. The safest option is to own a hardware wallet.

Best Hardware Wallet for Uniswap

Whether you are buying UNI or swapping assets on the platform, it is important to keep your crypto safe. Many people transfer their tokens into a hardware wallet to keep their keys off the internet, further protecting them from scams. A popular hardware wallet used by crypto holders is Ledger Nano S.

Best Hardware Wallet 

The Ledger Nano S is a leading hardware wallet trusted by many crypto users. While a software wallet is useful for connecting to decentralized applications such as Uniswap, a hardware wallet provides another layer of security. 

Cryptocurrency Market Outlook

The crypto market has been under intense pressure; as Bitcoin continues to plummet, altcoins have crashed even more fiercely. This macro trend has crushed Uniswap in terms of price, but the price drop has far more to do with the market sell-off than it does with Uniswap’s core fundamentals or safety.

Is Uniswap’s Governance Token, UNI, a Safe Investment?

The current market conditions make Uniswap a risky investment. With investors rushing to sell their assets, risk-on assets like crypto are typically some of the first to go. If the selling continues, an attractive buying price may appear but for now, be cautious with this current bear market.

Disclosure: ²Sum of median estimated savings and rewards earned, per user in 2021 across multiple Coinbase programs (excluding sweepstakes). This amount includes fee waivers from Coinbase One (excluding the subscription cost), rewards from Coinbase Card, and staking rewards. ³Crypto rewards is an optional Coinbase offer. Upon purchase of USDC, you will be automatically opted in to rewards. If you’d like to opt out or learn more about rewards, you can click here. The rewards rate is subject to change and can vary by region. Customers will be able to see the latest applicable rates directly within their accounts
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