Let's talk about uniswap
Uniswap is a decentralized exchange built on the Ethereum blockchain. It was founded in 2018 and is considered one of the greatest decentralized exchanges available. It works with all ERC20 tokens and certain wallets, including trust wallet, metamask, and myetherwallet
Uniswap employs smart contracts in other to transact on the platform. It makes use of exchange and a factory contract, both of which play an important role in transaction execution. As it has been designed to fulfill a certain duty, the factory contract contributes additional tokens to the platform, while the exchange contract handles all the token swaps which makes it possible for every ERC20 token to be swapped on uniswap
Liquidity providers on Uniswap earn 0.3% on all trades proportional to their share of the pool. Uniswap is also an AMM base dex, and rather than using order book where there's bid and ask price, algorithm formula is used to determine the price for users, as every AMM already have their own algorithms and how it works in the liquidity pool
As nice as this platform is, one of the things that still serve as a limitation is the permissionless listing of tokens. Anyone can list or add tokens as they wish which encourages many malicious projects to spring and rip people off their fund
Lending and borrowing:
These are one of the important element in any financial system. Lenders are regarded as depositors and they are the one that provides funds to borrowers in a return for interest on the amount they lend the borrower. Defi lending allows users to become lenders and borrowers in a decentralized way where they both maintain full custody of their funds. There are various lending protocols on defi lending, like AAVE, COMPOUND, and so on. They work by creating a money market for some tokens like eth, DAI, USDC, and others
Let's see how the lending and borrowing works in the defi settings
For instance, a user (user A) supplies his token say $2000 to a money market intending to make a profit from it according to the current supply APY of the money market. From the money market, the token is sent to a smart contract where it can be available for other users (User B) to borrow. Once another user borrows the token, user A would get another token in exchange for the supplied token plus interest. It is the smart contract designed for this purpose that issues out this other token to user A. This other token on compound is called CTOKEN, while AAVA calls theirs ATOKEN. And in other, for user B to borrow, he needs to supply a token as collateral worth more than the loan he wants to take
This is the simple formula/criteria that must be met before a user can borrow.
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