Uniswap is a fully decentralized on-chain protocol for token exchange on Ethereum that uses liquidity pools instead of order books. Anyone can quickly swap between ETH and any ERC20 token or earn fees by supplying any amount of liquidity. And anyone can create a market (i.e., liquidity pool) by supplying an equal value of ETH and an ERC20 token. Uniswap allows only one market per ERC20 token. The market creator sets the exchange rate, which shifts through trading due to Uniswap’s “constant product market maker” mechanism. When trading reduces one side of the pair’s liquidity relative to the other, the price changes. This creates arbitrage opportunities, encouraging more trading.
Uniswap has no native token, but each liquidity pair is represented by a unique, freely-transferable ERC20 token. All fees (0.3% per trade) are added to the relevant liquidity pool; thus all fees go to liquidity providers in proportion to their share of the pool’s liquidity. Liquidity providers can add to or withdraw their funds at any time.
With larger price changes, liquidity providers suffer an “impermanent loss.” The loss diminishes as prices return to their level at the time liquidity was supplied. With sufficient trading volume, fees earned may offset this loss.
How to use Uniswap?
The [main Uniswap interface, https://uniswap.exchange] is the best place to swap tokens, create a market, or manage your liquidity pool. You can also see your token balances, current exchange rates, and and your share of the liquidity pool.