What Is Uniswap?

Uniswap was launched by Hayden Adams in 2018. Users swap their tokens directly with a liquidity pool instead of being matched with a counterparty. Liquidity providers who deposit two tokens together into pools earn a share of the trading fees charged on swaps. In the early versions, the price is determined by the formula x × y = k, in which the product of the two token amounts in the pool stays constant.

The protocol has undergone significant changes over time. Uniswap v3 introduced the concentrated liquidity model, in which liquidity providers can concentrate their capital in specific price ranges. Uniswap v4 introduced the hook structure, which allows pool-specific rules to be added. The UNI token, deployed in 2020, gives holders voting rights over the protocol's parameters and treasury; at distribution, an airdrop was made to addresses that had previously used the protocol.

Uniswap is permissionless; anyone can create a pool for any ERC-20 token. This flexibility means that fake or fraudulent tokens can also be traded. Liquidity providers face impermanent loss risk, while large trades in shallow pools can cause high slippage.