Uniswap Updates Privacy Policy: Will Track User Data for Optimization

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Neither the author, Tim Fries, nor this website, The Tokenist, provides financial advice. Please see our website policy before making financial decisions.

After undergoing three major upgrades, the largest decentralized exchange Uniswap (v3) has released a new privacy policy Friday. In a post-FTX era, where people are withdrawing their assets from centralized exchanges, Uniswap clarifies the roles between a company and a DeFi protocol.

Uniswap’s View on Blockchain Data Sharing

New from Uniswap privacy policy revealed what user data is tracked and for what purposes. Notwithstanding dYdX’s biometric misfire, all DEXs are exempt from Know Your Customer (KYC) identity verification. As a result, Uniswap saves publicly available blockchain data, such as wallet addresses, which is filtered to detect any illicit activity.

“We review your portfolio using information provided by leading blockchain analytics providers.”

This is likely a reference to TRM Labs, which partnered with Uniswap in April. Based in San Francisco and headed by Esteban Castaño, TRM receives addresses from Uniswap which are then scanned for illicit activity. Not limited to DeFi, TRM also provides its analytics services to Coinbase, Binance, and Shopify.

Through November 9, TRM Labs has raised $149.9 million to ensure digital asset compliance. Over six funding rounds, TRM has had notable investors from TradFi: Goldman Sachs, Visa, and even PayPal Ventures, at $4.2 million. PayPal suffered a user exodus this year after exiting its financial jurisdiction in social police.

Uniswap web data only for platform improvement

When it comes to non-blockchain data, it’s worth bearing in mind that Uniswap is also a web interface rooted in smart contracts. As such, Uniswap may track associated data: cookies, mobile device ID, web beacons, operating system, browser type and other web session related data.

All of this can be blocked by the user using standard browser plug-ins and privacy settings. Uniswap notes that this data is anonymized and analyzed in aggregate to improve user experience. Uniswap does not collect personal information (emails, addresses, IP addresses, names), so it is not shared with third parties.

To ensure that this data flow does not turn into a classic Web2 situation where user information is intercepted, Uniswap has implemented a “reverse proxy server that sits between users’ devices and any third-party tools “.

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Can Uniswap block wallets?

If Uniswap receives a list of wallet address blocks, as happened when OFAC Sanctions Tornado Cashit shares both off-chain and on-chain traceable data with government agencies (if required to) and service providers.

For example, Uniswap and MetaMask use inflate as the backend of the Web3 infrastructure. This is why Tornado Cash could no longer function after Infura blocked access, despite TC smart contracts still running on Ethereum. In this specific case, Uniswap blocked 253 wallet addresses, according to developer Yearn Finance Banteg.

From this example, it is clear that Uniswap’s privacy policy is aligned with Uniswap’s three-tier structure:

  • Permissionless smart contracts executed on a public blockchain.
  • Front-end website that provides a user interface to smart contracts.
  • Backend infrastructure that provides the frontend.

Only the first layer resists interception by third parties, be it the government or a service provider.

Will Uniswap catch the CEX pullback?

Last week, we noted a historic bitcoin withdrawal rate from CEX, at 106k BTC/month. Although the FTX collapse drained $200 billion from the entire crypto market, we also saw DEX tokens outperform their CEX counterparts.

Since then, there has only been news about the FTX contagion, from Genesis to trade from Grayscale Bitcoin Trust (GBTC) to more -42% Low HUD against his BTC holdings. Amid this centralized fallout, the Uniswap team, led by Hayden Adams, continues to consolidate its DEX market share.

According to CoinGecko, Uniswap (v3) makes 60% of all DEX trading volume, followed by PancakeSwap, Curve, Dodo, and Balancer. Through October 13, Uniswap has raised $176 million across two funding rounds, led by Polychain Capital and Andreessen Horowitz.

When it comes to trading volume, Uniswap is neck and neck with Coinbase. This is quite impressive considering that Uniswap has less than 100 employees while Coinbase has over 4,700.

7-day moving average trading volume. Even the world’s largest CEX Binance took a dive after the FTX fiasco. Image credit: The Block

Going forward, Uniswap is testing its new “fee change” pilot proposal, overwhelmingly endorsed by UNI speakers in July. This would be Uniswap’s self-monetization step, as the fee change toggle would allow Uniswap DAO to bolster its liquidity pools. To function properly, deep liquidity is a necessity for any exchange. Last week, Alastor delivered a strategic report on Uniswap’s fee implementation, which should be implemented in four stages to secure Uniswap’s position in a competitive future.

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Although they have some infrastructure vulnerabilities, do you think noncustodial wallets like MetaMask will eventually replace custodial CEX accounts? Let us know in the comments below.

About the Author

Tim Fries is the co-founder of The Tokenist. He has a B.Sc. in Mechanical Engineering from the University of Michigan and an MBA from the University of Chicago Booth School of Business. Tim was a senior partner on the investment team in the US Private Equity division of RW Baird and is also a co-founder of Protective Technologies Capital, an investment firm specializing in detection, protection and control solutions.

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