Uniswap is an automated liquidity protocol powered by a constant product formulaand implemented in a system of non-upgradeable smart contracts on the Ethereum blockchain.It obviates the need for trusted intermediaries, prioritizing decentralization, censorship resistance,and security. Uniswap is open-source software licensed under theGPL.
Each Uniswap smart contract, or pair, manages a liquidity pool made up of reserves of two ERC-20 tokens.
Anyone can become a liquidity provider (LP) for a pool by depositing an equivalent value of each underlying token in return for pool tokens. These tokens track pro-rata LP shares of the total reserves, and can be redeemed for the underlying assets at any time.
Pairs act as automated market makers, standing ready to accept one token for the other as long as the “constant product” formula is preserved. This formula, most simply expressed as x * y = k, states that trades must not change the product (k) of a pair’s reserve balances (x and y). Because k remains unchanged from the reference frame of a trade, it is often referred to as the invariant. This formula has the desirable property that larger trades (relative to reserves) execute at exponentially worse rates than smaller ones.
In practice, Uniswap applies a 0.30% fee to trades, which is added to reserves. As a result, each trade actually increases k. This functions as a payout to LPs, which is realized when they burn their pool tokens to withdraw their portion of total reserves. In the future, this fee may be reduced to 0.25%, with the remaining 0.05% withheld as a protocol-wide charge.
Because the relative price of the two pair assets can only be changed through trading, divergences between the Uniswap price and external prices create arbitrage opportunities. This mechanism ensures that Uniswap prices always trend toward the market-clearing price.
To see how token swaps work in practice, and to walk through the lifecycle of a swap, check out Swaps. Or, to see how liquidity pools work, see Pools.
Ultimately, of course, the Uniswap protocol is just smart contract code running on Ethereum. To understand how they work, head over to Smart Contracts.
FAQs
How Uniswap Works. The Uniswap platform uses blockchain-based smart contracts to facilitate the decentralized trading of many different digital assets. Pairs of digital assets are swapped via liquidity pools, which use smart contracts to automatically rebalance after every trade.
How do you make money on Uniswap? ›
Earning passive income with Uniswap V3 liquidity pools is relatively simple. All you need to do is deposit an equal value of two tokens in a liquidity pool and set a price range for your liquidity provision.
What is the disadvantage of Uniswap? ›
Uniswap Disadvantages
1. Trading on Uniswap is not a traditional financial transaction model, so when exchanging tokens, the transaction price cannot be determined by the user. 2. The transaction fee on Uniswap is about 0.3%, which is higher than the transaction fee of centralized exchanges at about 0.1%.
How do I get my money from Uniswap? ›
Uniswap withdrawal
- Navigate to your Wallet and click the Withdraw button.
- Select the UNI wallet in the “Withdraw from” field.
- Select the withdrawal address or add a new withdrawal address. ...
- Enter the amount of UNI you wish to withdraw.
- Click Review withdraw button.
- You will be presented with the confirmation screen.
To swap tokens on Uniswap follow these steps:
- Open Uniswap web app and connect your wallet. ...
- Search for and select the token you wish to swap. ...
- Now you have to select the token you want to swap for. ...
- Search for and select the token you wish to swap for.
The live Uniswap price today is $7.31 USD with a 24-hour trading volume of $1.22M USD.
Can Uniswap hit $100? ›
As more projects and exchanges adopt Uniswap's model of decentralized applications, the value of holding UNI tokens for its protocol governance is also likely to increase. Whether it reaches $20, $50, or even $100 by 2030 depends on how successful Uniswap remains in dominating the DeFi space in the long run.
Can US citizens use Uniswap? ›
Global and permissionless: There is no concept of borders, or restrictions on who can trade.
Why is Uniswap failing? ›
The Uniswap interface sets a default slippage limit of 0.5%. This slippage limit is the difference between your expected output and the real output at the time of your swap. If the real output changes by more than your set slippage, the transaction will fail. At your own risk, you can adjust the slippage limits.
Is Uniswap risky? ›
For example, suppose a smart contract checks the asset ratio in a Uniswap pool at runtime and trades against it, assuming that the ratio represents the "fair" or "market" price of these assets. In that case, it is highly vulnerable to manipulation.
As a result, for small swaps with size below $1000, over 98% of total transaction cost is paid as gas cost; in contrast, for large swaps with size above $100,000, gas cost accounts for 2.4% of total transaction cost.
How are fees paid out on Uniswap? ›
Every trade on Uniswap incurs a fee. Fees are distributed pro-rata among LPs in a pool. V1: An LP fee of 0.30% was taken out on each trade and added to the pool's reserves. V2: The protocol still applied a 0.30% fee to trades.
Is Uniswap a wallet? ›
What is a Uniswap (UNI) Wallet? Your UNI wallet is your proof of ownership. You need a UNI wallet to access, buy and trade your UNI coins.
Does Uniswap report to IRS? ›
Does Uniswap automatically deduct taxes? No, as of 2024, Uniswap does not automatically deduct taxes from crypto trades. However, Uniswap might still report your crypto transactions to your country's tax authority, like the IRS or HMRC.
Is Uniswap worth using? ›
THE BOTTOM LINE: Uniswap, crypto's leading decentralized exchange, is a good fit for both experienced crypto traders and beginners. But newbies should pay special attention to the price impact on trades. Fortunately, Uniswap lets you know if the price impact of your trade is high.
What currency does Uniswap use? ›
Ethereum ETH
The UNI token is designed to be used in the future governance of the Uniswap protocol. UNI holders who hold 1% or more of the total UNI supply can submit development proposals, while any UNI holder, regardless of how much they hold, is able to vote on these proposals.
Is Uniswap a good investment? ›
UniSwap is undoubtedly a credible DEX among crypto investors, and they prefer UNI coins to invest in because of its market performance and solid reputation.
Can Uniswap go to $1000? ›
Our forecast goes as far as 2050 when we believe the asset's price will reach $135. It is possible that Uniswap will be with $1000 in the very distant future, however, this does not seem reachable in the next few years.
How much does Uniswap earn? ›
There is a 0.3% fee for swapping tokens. This fee is split by liquidity providers proportional to their contribution to liquidity reserves.
