Why is it so expensive to trade with Uniswap?

Question

Please please please, I really would like to know by someone knowledgeable. I looked at the other responses but I still do not truly understand. It just doesn't make sense why anyone would want ETH to be this high. Bought a bunch a while ago and locked it in a smart contract before the last bull run years ago. Sold most of it now, but I still want to keep using the network, as much of the sales went to ERC20 tokens. Now I am basically locked out of swapping it like many others. I am trying to execute larger trades but the fees for swapping are freaking ridiculous ($5000+). To me it seems there is no reason to participate, unless I am doing something wrong.

Is Ethereum 2.0 going to solve this? I'm still kind of a noob about ETH2.0.

I just cant find any good concrete information and I have been trying to FOBM. Never actually asked a question before until now.

Thanks in advance.

Answer 1

There are three fees that apply when you make a trade on Uniswap. I don't know which fee you are referring to so I will break them all down.

1. Gas fee. This is the fee that you pay so that miners will include your transaction in a block. The gas fees have been very high lately simply because a lot of people are using Ethereum blockchain and there is only a certain amount of transactions that can be included in any given block (calculated by gas). It is definitely not 5000$, but depending on network usage, maybe between 10-50$.

2. Liquidity pool fee. This is a fee that you pay to the Uniswap pair (ie. ETH-USDT). It is equal 0.3% for each pair your swap goes through. Unless you trade very large amounts, this should not be 5000$.

3. Slippage. Slippage is the price change that your swap causes in a given pair. If you make a large trade in proportion to the liquidity in the pool, your swap will cause a large shift in price. For instance, if you make a 10000$ swap in a pair that contains only 50000$ in liquidity, your trade will cause a very high slippage that may be the 5000$ you are referring to. Uniswap, like most AMM, is only good for trades that are small in comparison to the liquidity pool used.

Eth 2.0 will only solve gas fee (#1). The other fees are inherent to how Uniswap work and will not be affected by Eth 2.0.