uniswap exchange


Uniswap is a leading decentralized crypto exchange that runs on the Ethereum blockchain.

The vast majority of crypto trading takes place on centralized exchanges such as Coinbase and Binance. These platforms are governed by a single authority (the company that operates the exchange), require users to place funds under their control and use a traditional order book system to facilitate trading.

Order book-based trading is where buy and sell orders are presented in a list along with the total amount placed in each order. The amount of open buy and sell orders for an asset is known as “market depth.” In order to make a successful trade using this system, a buy order has to be matched with a sell order on the opposite side of the order book for the same amount and price of an asset, and vice versa.

Major traits that make Uniswap worth trying

This part of the read has been assigned the responsibility to help you understand the key features of the Uniswap exchange platform and they have been listed below:

  • All-day trading with automation- There is an automatic smart contract system that helps in executing each of the trades and you can make trading transactions throughout the day (and night).
  • Trade in Ethereum- This platform is exclusive to making transactions only for ERC-20 tokens on the Ethereum network.
  • Portrays decentralization- Uniswap Exchange has been created to portray the features and services of a decentralized exchange platform, wherein tokens can be traded without any intervention or interference of a centralized third party. However, it only portrays decentralization but is different from it as there is no P2P exchange in the real-time. It is only for swapping Ethereum-based tokens with a liquidity pool.
  • No restrictions on Order Size- The order size for Uniswap is given from zero to infinity and the used system employs a curve that results in price increase as and when there is an increase in the desired quantity. Therefore, it is certain that there is no restriction on the size of the order but larger orders might be more expensive after a certain point.
  • Ethereum Foundation Grant- The developer of the platform is recognized for receiving the Ethereum Foundation grant for developing Uniswap.
  • Low trading fee- Transactions would be charged as low as 0.3% trading fee that can be directly invested into the liquidity providers. That’s right, the charged fees do not go to the founders or any other centralized platform but are used to keep the system working and to offer incentives to the liquidity providers to make markets.
  • More than 80 variants- Uniswap has managed to house more than 80 crypto tokens that have been designed to be Ethereum-based.
  • Provide liquidity and earn- A cut of the trading fees, as mentioned above, goes to the liquidity providers. And you can earn it by depositing any of the Ethereum-based tokens that the platform is compatible with.
  • Supported Wthereum wallets- Uniswap Exchange lets you swap tons of Ether-based tokens and to make it even more facile, we suggest users link it to any of their Ethereum wallets. It makes the swap quicker and more efficient.

Learn about the functionality of Uniswap

As you recall, Uniswap exchange is entirely based on an automated token exchange system that runs on the Ethereum blockchain network. There is no peer-to-peer transaction in real-time but can help in swapping your ERC-20 protocol tokens without any third-party intervention. As long as Uniswap offers and/or provides liquidity, almost any Ethereum-based token can be listed on the platform for swapping purposes. When working with Uniswap, traders need to begin with selecting two of the available tokens that they wish to trade in. Then, there is a thorough review of three specific things- price slippage, proposed swap rate, and the fee paid. And lastly, traders need to confirm their swap transaction that settles the trade right away into an Ethereum Wallet.

Steps for the swap- Uniswap Exchange

This part of the read has been prepared to help you with the steps involved in swapping Ethereum-based tokens on Uniswap:

  1. Begin with entering the official Uniswap Exchange site online.
  2. Choose the type of Ethereum-based token you want to send out.
  3. Choose the type of ERC-20 token that you want to get back.
  4. Type in the amount you wish to swap for the tokens.
  5. Compare and review the swap rate, the price slippage, and the like.
  6. Hit the “Connect to Wallet” option and add your Ethereum Wallet.
  7. Confirm your input data for the transaction and conclude the swap.

What is Uniswap?

Uniswap is a completely different type of exchange that‘s fully decentralized – meaning it isn’t owned and operated by a single entity – and uses a relatively new type of trading model called an automated liquidity protocol (see below).

The Uniswap platform was built in 2018 on top of the Ethereum blockchain, the world’s second-largest cryptocurrency project by market capitalization, which makes it compatible with all ERC-20 tokens and infrastructure such as wallet services like MetaMask and MyEtherWallet.

Uniswap is also completely open source, which means anyone can copy the code to create their own decentralized exchanges. It even allows users to list tokens on the exchange for free. Normal centralized exchanges are profit-driven and charge very high fees to list new coins, so this alone is a notable difference. Because Uniswap is a decentralized exchange (DEX), it also means users maintain control of their funds at all times as opposed to a centralized exchange that requires traders to give up control of their private keys so that orders can be logged on an internal database rather than be executed on a blockchain, which is more time consuming and expensive. By retaining control of private keys, it eliminates the risk of losing assets if the exchange is ever hacked. According to the latest figures, Uniswap is currently the fourth-largest decentralized finance (DeFi) platform and has over $3 billion worth of crypto assets locked away on its protocol.

How Uniswap works

Uniswap runs on two smart contracts; an “Exchange” contract and a “Factory” contract. These are automatic computer programs that are designed to perform specific functions when certain conditions are met. In this instance, the factory smart contract is used to add new tokens to the platform and the exchange contract facilitates all token swaps, or “trades.” Any ERC20-based token can be swapped with another on the updated Uniswap v.2 platform.

Automated liquidity protocol

The way Uniswap solves the liquidity problem (described in the introduction) of centralized exchanges is through an automated liquidity protocol. This works by incentivizing people trading on the exchange to become liquidity providers (LPs): Uniswap users pool their money together to create a fund that’s used to execute all trades that take place on the platform. Each token listed has its own pool that users can contribute to, and the prices for each token are worked out using a math algorithm run by a computer (explained in “How token price is determined,” below).

With this system, a buyer or seller does not have to wait for an opposite party to appear to complete a trade. Instead, they can execute any trade instantly at a known price provided there’s enough liquidity in the particular pool to facilitate it.

In exchange for putting up their funds, each LP receives a token that represents the staked contribution to the pool. For example, if you contributed $10,000 to a liquidity pool that held $100,000 in total, you would receive a token for 10% of that pool. This token can be redeemed for a share of the trading fees. Uniswap charges users a flat 0.30% fee for every trade that takes place on the platform and automatically sends it to a liquidity reserve.

Whenever a liquidity provider decides they want to exit, they receive a portion of the total fees from the reserve relative to their staked amount in that pool. The token they received which keeps a record of what stake they’re owed is then destroyed.

After the Uniswap v.2 upgrade, a new protocol fee was introduced that can be turned on or off via a community vote and essentially sends 0.05% of every 0.30% trading fee to a Uniswap fund to finance future development. Currently, this fee option is turned off, however, if it is ever turned on it means LPs will start receiving 0.25% of pool trading fees.

How token price is determined

Another important element of this system is how it determines the price of each token. Instead of an order book system where the price of each asset is determined by the highest buyer and lowest seller, Uniswap uses an automated market maker system. This alternative method for adjusting the price of an asset based on its supply and demand uses a long-standing mathematical equation. It works by increasing and decreasing the price of a coin depending on the ratio of how many coins there are in the respective pool.

It’s important to note that whenever someone adds a new ERC-20 token to Uniswap, that person has to add a certain amount of the chosen ERC-20 token and an equal amount of another ERC-20 token to start the liquidity pool.

The equation for working out the price of each token is x*y=k, where the amount of token A is x and the amount of token B is y. K is a constant value, aka a number that doesn’t change.

For example, Bob wants to trade chainlink (LINK) for ether using the Uniswap LINK/ETH pool. Bob adds a large number of LINK to the pool which increases the ratio of LINK in the pool to ether. Since the value K must remain the same, it means the cost of ether increases while the cost of link in the pool decreases. So the more LINK Bob puts in, the less ether he gets in return because the price of it increases.

The size of the liquidity pool also determines how much the price of tokens will change during a trade. The more money, aka liquidity, there is in a pool, the easier it is to make larger trades without causing the price to slide as much.

Chart by Vitalik Buterin


Arbitrage traders are an essential component of the Uniswap ecosystem. These are traders that specialize in finding price discrepancies across multiple exchanges and use them to secure a profit. For example, if bitcoin was trading on Kraken for $35,500 and Binance at $35,450, you could buy bitcoin on Binance and sell it on Kraken to secure an easy profit. If done with large volumes it’s possible to bank a considerable profit with relatively low risk.

What arbitrage traders do on Uniswap is find tokens that are trading above or below their average market price – as a result of large trades creating imbalances in the pool and lowering or raising the price – and buy or sell them accordingly. They do this until the price of the token rebalances in line with the price on other exchanges and there is no more profit to be made. This harmonious relationship between the automated market maker system and arbitrage traders is what keeps Uniswap token prices in line with the rest of the market.

How to use Uniswap

Getting started with Uniswap is relatively straightforward, however, you will need to make sure you already have an ERC-20 supported wallet setup such as MetaMask, WalletConnect, Coinbase wallet, Portis, or Fortmatic.

Once you have one of those wallets, you need to add ether to it in order to trade on Uniswap and pay for gas – this is what Ethereum transaction fees are called. Gas payments vary in price depending on how many people are using the network. Most ERC-20 compatible wallet services give you three choices when making a payment over the Ethereum blockchain: slow, medium or fast. Slow is the cheapest option, fast is the most expensive and medium is somewhere in between. This determines how quickly your transaction is processed by Ethereum network miners.Read more: Ethereum 101: What is Ethereum Mining?

1. Head to https://uniswap.org 2. Click “Use Uniswap” in the top right-hand corner. 3. Go to “Connect wallet” in the top right-hand corner and select the wallet you have. 4. Log into your wallet and allow it to connect to Uniswap.5. On the screen it will give you an option to swap tokens directly using the drop-down options next to the “from” and “to” sections. 6. Select which token you’d like to swap, enter the amount and click “swap.” 7. A preview window of the transaction will appear and you will need to confirm the transaction on your ERC-20 wallet. 8. Wait for the transaction to be added to the Ethereum blockchain. You can check its progress by copying and pasting the transaction ID into https://etherscan.io/. The transaction ID will be available in your wallet by finding the transaction in your sent transaction history.https://2aceeae60099c2fdd63623e00ba238ed.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html

Uniswap’s UNI token

Uniswaps native token, UNI, is known as a governance token. This gives holders the right to vote on new developments and changes to the platform, including how minted tokens should be distributed to the community and developers as well as any changes to fee structures. The UNI token was originally created in September 2020 in an effort to prevent users from defecting to rival DEX SushiSwapOne month before UNI tokens launched, SushiSwap – a fork of Uniswap – had incentivized users from Uniswap to allow SushiSwap to reallocate their funds to the new platform by rewarding them with SUSHI tokens. This was a new type of token that gave users governance rights over the new protocol as well as a proportionate amount of all transaction fees paid to the platform.

Uniswap responded by creating 1 billion UNI tokens and decided to distribute 150 million of them to anybody who had ever used the platform. Each person received 400 UNI tokens, which at the time amounted to over $1,000.