Uniswap is a decentralized swap protocol built on the Ethereum blockchain. To be more precise, it’s an automated liquidity protocol, with no order book or any centralized party required to execute trades. Uniswap allows users to transact without intermediaries, with a high degree of decentralization and censorship resistance. Currently, Uniswap is the most widely used decentralized application (dApp) globally to date.
Uniswap works on the Automated Market Maker (AMM) model—a type of smart contract that holds a reserve of liquidity (liquidity pool) that traders can trade in. The liquidity provider funds these reserves. Anyone can be a liquidity provider (LP), depositing the equivalent value of two tokens into the pool. In return, traders pay a fee to the pool, which is then distributed to liquidity providers according to their market share in the pool.
Liquidity providers create markets by depositing the equivalent value of two tokens, be it ETH and an ERC-20 token or two ERC-20 tokens. These pools are usually made up of stablecoins like DAI, USDC, or USDT, but this is not required. In return, liquidity providers receive “liquidity tokens,” representing their market share of the entire liquidity pool. These liquidity tokens can be exchanged for the market share they represent in the pool.
Thus, it can be understood that Uniswap has two main functions:
UNI is an ERC-20 token born to initiate and encourage community ownership and governance participation. The Uniswap (UNI) token launch also became a catalyst for the increase in the price of ETH. A total of 1 billion UNI tokens have been minted; the initial supply will be fully diluted over the next four years, with 60% allocated to community members (600,000,000 UNI). Currently, UNI is present on many prestigious global exchanges such as Binance, Coinbase Pro, OKEx, etc.