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What is Uniswap Exchange?

Nov 17, 2021
Uniswap is trying to solve decentralized exchanges' liquidity problem, by allowing the exchange to swap tokens without relying on buyers and sellers creating that liquidity.

Below we explore how Uniswap works—and how it became one of the leading decentralized exchanges built on Ethereum.

What is Uniswap?​

Uniswap is a protocol on Ethereum for swapping ERC20 tokens. Unlike most exchanges, which are designed to take fees, Uniswap is designed to function as a public good—a tool for the community to trade tokens without platform fees or middlemen. Also unlike most exchanges, which match buyers and sellers to determine prices and execute trades, Uniswap uses a simple math equation and pools of tokens and ETH to do the same job.

What’s so special about Uniswap?​

Uniswap’s main distinction from other decentralized exchanges is the use of a pricing mechanism called the “Constant Product Market Maker Model.”

Any token can be added to Uniswap by funding it with an equivalent value of ETH and the ERC20 token being traded. For example, if you wanted to make an exchange for an altcoin called Durian Token, you would launch a new Uniswap smart contract for Durian Token and create a liquidity pool with–for example–$10 worth of Durian Token and $10 worth of ETH.

Where Uniswap differs is that instead of connecting buyers and sellers to determine the price of Durian Token, Uniswap uses a constant equation: x * y = k.
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