Uniswap is a protocol for automated token exchange on the Ethereum network. The Uniswap exchange is an open source, decentralized platform that allows users to swap ERC20 tokens in a trustless environment (meaning users don’t rely on anybody to govern swaps). Uniswap also allows users to earn money by providing liquidity to token reserve pools. Note: Anybody can submit an ERC-20 token to be available for swap on Uniswap. Ensure you carry out adequate research before swapping, especially if trading a smaller, less known token/coin.
Most exchanges maintain an order book and facilitate matches between buyers and sellers. As mentioned above, Uniswap smart contracts hold liquidity reserves of various tokens. New trades/swaps are executed against these reserves, voiding the need for “the other side” in each trade. The funds in these pools come from users (anybody can add to these pools) who voluntarily provide liquidity to the network in exchange for a share of the exchange fees incurred during trades (liquidity providers receive a proportional share to the amount of funds they’ve contributed). Asset prices are set automatically using the constant product market maker mechanism (pre-programmed algorithm), which keeps overall reserves in relative equilibrium.
The Uniswap platform has no sign up or KYC requirements. Anyone, anywhere can quickly swap between ETH and any ERC20 tokens
Before using Uniswap you’ll need an Ethereum based wallet. Our recommended wallet of choice is Metamask. If you’re not yet familiar with this, check out our Guide To Using Metamask.
Now that you’re signed in you’ll see your wallet address in the top right corner along with your available balance in Ether. Clicking on your wallet address will bring up the screen shown below where you can copy your receiving address to your clipboard. This mitigates the chance of making an error if sending your address to another user. Clicking anywhere on the screen will bring you back to the Uniswap landing page. Note: only ERC-20 tokens can be received to this address. Sending incorrect protocol tokens to this address may result in loss of funds.
Now that we’ve successfully connected our Metamask wallet we will run through the various functionalities offered by Uniswap. These can be found at the top of the landing page: 1) Swap, 2) Pool, 3) Vote and 4) Charts.
Once signed in, the trading interface will appear. Here you can select what tokens you would like to swap. The gear icon
In this example, we will swap ETH for the Uniswap native token - UNI.
Unlike typical exchanges where buyers are matched with sellers. Uniswap uses liquidity pools to govern transactions. Users contribute their tokens to a pool (e.g. ETH-USDC), when another user wants to purchase either token their transaction is taken straight from the pool. Contributors are known as liquidity providers (LPs). Transaction fees are divided proportionally among pool contributors based on how much they’ve assigned to the pool. This method aims to ensure that swaps can always be made even if there is a lack of buyers/sellers of a given token.
Anybody can contribute their funds to pools in return for transaction fees (note: pooled funds always belong to the contributor and can be withdrawn at any time). We strongly advise users familiarise themselves with liquidity pools before engaging with them. This guide is intended for educational purposes only, further research should be conducted prior to depositing funds.
The 0.05% fee tier is ideal for token pairs that tend to trade at a fixed or highly correlated rate, such as stablecoin-stablecoin token pairs (e.g. USDC-USDT). Liquidity providers take on minimal risk in these pools but earn less fees.
The 0.30% fee tier is best suited for less correlated pairs such as ETH-USDC which are subject to big price movements both to the upside and downside. Higher fees are more likely to compensate LPs for the increased risk of holding more volatile pairs.
The 1.00% tier is designed for exotic pairs, where LPs take on extreme price risk.
LPs won’t earn transaction fees if the price moves outside these set limits. Earnings won’t continue until price moves back within these ranges.
Although it is possible to profit from adding funds to liquidity pools, be sure to research the risks involved when providing liquidity. A thorough guide to Liquidity Pools can be found here on the Uniswap website.
Uniswap is a decentralized platform where users have the ability to participate in the governance of the site. Proposals for potential changes to how the site operates are found in this section. Once a proposal has reached the voting stage it represents real, executable code which will alter the functionality of Uniswap Governance. Uniswap’s native token “UNI” is what controls voting. UNI holders allocate their funds either for or against each motion. 1% of the total UNI tokens need to be cast in favor to submit a proposal, 4% needs to be cast to pass a vote (tokens aren’t lost during voting). This model incentivizes user engagement and promotes users to hold the native Uniswap token. A more in depth look at how Uniswap voting works can be found here.
Here users can view statistics related to specific tokens on the Uniswap network or the network as a whole. Metrics include: TLV (Total Locked Value this refers to the amount of assets that are currently locked as liquidity on the Uniswap network), Volume 24h (total value that has been swapped on the network in 24 hours) and more.
Still having trouble with Uniswap or other cryptocurrency related platforms? Email firstname.lastname@example.org for more help.
If you have a crypto related topic you’d like to learn more about let us know through our social media pages below: