Uniswap is a decentralized liquidity protocol and exchange on Ethereum, launched in November 2018. Uniswap v2 launched in May 2020. Users can swap ERC-20 tokens for a fee or contribute tokens to liquidity pools to earn fees.
Markets on Uniswap operate as liquidity pools rather than order books. This type of exchange is called an Automated Market Maker (AMM). The exchange rate between the two assets is determined by a constant product formula and moves along a price curve depending on the relative weight of each asset in the pool. This encourages arbitrageurs to enter liquidity pools to rebalance the relative weights and normalize the exchange rate.
Traders can suffer from slippage if there is not enough liquidity in a given pool and may not be protected from unfavorable exchange rates. Liquidity providers may suffer impermanent loss when the pool exchange rate does not match market realities and arbitrageurs execute trades along the pricing curve.
Pool participants are given Uniswap Liquidity Provider (LP) tokens that correspond to their share of liquidity provided in a given pool. These LP tokens are freely transferable. Participants can exit pools at any time by redeeming these tokens for the assets provided and fees accrued.
Token issuers seeking to improve liquidity of their token have offered incentives to liquidity providers in liquidity mining campaigns. New token issuers have also launched their tokens on Uniswap pools.
Trading volumes on Uniswap now eclipse that of many traditional exchanges and regularly surpass $200 million daily. Uniswap has over $170 million in Total Value Locked (TVL) by liquidity providers. Uniswap does not have a native platform or governance token.
Uniswap has had its smart contracts audited and formally verfied by dapp.org. Uniswap maintains a bug bounty program.