Uniswap

Uniswap is a platform where you can swap tokens directly. It’s a DEX: there’s no centralized crypto exchange to carry out the swap.

What is Uniswap?

Uniswap uses liquidity pools instead of an order book with buy and sell orders. A liquidity pool is a reserve of two tokens provided by users.

When you make a swap, you send one token to the pool and receive the other token in return. Smart contracts, programs that automatically enforce rules, handle the swap.

The price changes based on the amount of each token in the pool. Users who add tokens to a pool are called liquidity providers. They may receive a share of the swap fees.

UNI is the token of the Uniswap protocol. It gives holders voting rights on certain decisions. You don’t need UNI to swap tokens or add liquidity.

An example of Uniswap

Imagine a pool contains token A and token B. You swap token A for token B. You send token A to the pool and receive token B from that same pool.

Your swap changes the ratio between the two tokens in the pool. This can change the price for the next user. With a large swap or a small pool, the price may be less favorable than expected.

Why is Uniswap important in crypto?

Uniswap shows how tokens can be swapped without a centralized crypto exchange or a traditional order book. That’s why the name often appears in news about DeFi, an umbrella term for financial services on blockchain networks.

News about Uniswap may also cover UNI and governance. This means UNI holders can vote on decisions about the protocol. Holding UNI doesn’t automatically mean you receive a share of its revenue.

Swapping tokens and adding liquidity involve risks and costs. Low liquidity can lead to slippage, which means the final price differs from the price you expected. Liquidity providers can lose money if token prices change significantly. There are also network fees and risks from smart contract bugs or unreliable tokens.