What is Uniswap (UNI)?
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 6 min
In short
Uniswap is a decentralised exchange protocol launched on Ethereum in 2018. Instead of matching buyers and sellers on an order book, it prices trades against liquidity pools using a formula. UNI is its governance token, used to vote on protocol changes.
Key points
- An automated market maker: prices come from liquidity pools and a formula, not an order book
- Anyone can create a pair for any token and supply liquidity to it
- V3 lets liquidity providers concentrate capital within a chosen price range
- UNI is a governance token and does not represent a claim on revenue
Definition
A decentralised trading protocol that derives prices from the ratio of two tokens in a liquidity pool and settles swaps without an intermediary.
Uniswap set out to let anyone swap tokens that no exchange has listed, without asking permission. On a traditional exchange the operator decides what gets listed, and a trade needs a buyer and a seller at the same moment. Liquidity pools replace both requirements.
A pool holds two tokens, and the price is derived from the ratio of their balances. In the simplest form, swap sizes are set so that the product of the two balances stays constant: buy one token and its balance falls, so its price rises. Each swap charges a fee that is distributed to the liquidity providers.
V3, released in 2021, let providers concentrate liquidity within a price range. For pairs that barely move, such as two stablecoins, the same capital can support far more trading volume. The trade-off is that once price leaves the chosen range, the position stops earning fees, so positions need active management.
UNI arrived in 2020, distributed to past users, as a governance token. Holders vote on protocol changes, treasury spending and how fees are handled. Holding it does not, however, entitle anyone to a share of trading fees.
Watch out for
- · Providing liquidity can leave you worse off than simply holding, because of impermanent loss
- · Anyone can list a token, so fake tokens with identical names are common — verify by contract address
- · As with any smart contract, vulnerabilities or maliciously designed tokens can cause losses
Frequently asked questions
Do I need to open an account?
No. You connect a wallet and call the contract directly. That also means mistakes and phishing sites are entirely your own risk.