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Simply Explained

Simply Explained: Uniswap

Updated: Jul 25, 2024
Published: Feb 17, 2022
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Uniswap is a decentralised exchange (DEX) operating on the Ethereum network that allows anyone to exchange ERC20 tokens without having to trust a third party. It was one of the first decentralised finance applications to gain traction on Ethereum. It is governed by the token UNI.

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Market Cap: $7,776,468,152.35 (as of February 10, 2022)

So, how does Uniswap work?

What is Uniswap?

Uniswap is a decentralised exchange designed to make exchanging Ethereum (ERC-20) tokens simple. It removes the need for a centralised intermediary, so users can exchange their funds without having to trust a third party.

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The platform utilizes a simple mathematical equation for liquidity pools to enable the exchange of tokens. Whenever these are not in equilibrium, Uniswap’s math brings them back into balance. Users are incentivised to bring the pools back into balance.

Benefits

No-intermediary: as Uniswap is decentralised, users’ funds are never sent to a third party, eliminating third-party risk

Permissionless: Anyone with an internet connection can trade on Uniswap

What is UNI?

UNI was launched in September 2020. UNI is Uniswap’s governance token that allows users to vote on protocol changes.

Cryptonary's opinion

Uniswap is the OG decentralised exchange that’s trying to maintain friendliness with regulators. It currently has 0 value accrual for its token. Given that UNI is a governance token, though, UNI holders will vote revenue-sharing into existence, and that’s when UNI becomes fundamentally valuable.

Risk: There is a regulatory risk of DeFi limiting innovation.

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