Uniswap is a decentralized exchange (DEX) that allows users to swap various ERC-20 tokens directly from their wallets. Unlike traditional exchanges that rely on order books and market makers, Uniswap employs liquidity pools and smart contracts to facilitate trades. This system ensures liquidity is always available, provided by users who deposit tokens into pools, earning a share of the trading fees in return.
At the heart of Uniswap is the Automated Market Maker algorithm, primarily based on the constant product formula ( x \times y = k ).
Here, ( x ) and ( y ) are the quantities of two tokens in a pool, and ( k ) is a constant.
When a user swaps tokens, the protocol automatically adjusts the prices based on supply and demand, maintaining the invariant ( k ).
This model simplifies trading, reduces reliance on centralized entities, and democratizes market making.
Uniswap has seen exponential growth in trading volume over the years. As of early 2025, the protocol consistently processes several billion dollars worth of trades weekly.
For instance, in recent weeks, the weekly trading volume has often exceeded $4 billion, reflecting its popularity and deep liquidity pools.
This high volume underscores Uniswap's critical role in the DeFi ecosystem, enabling trading of a broad spectrum of tokens with minimal friction
The Process is straightforward:
- Connect a Wallet: Use compatible wallets such as MetaMask, Coinbase Wallet, or WalletConnect.
- Select Tokens: Choose the tokens you want to swap or provide as liquidity.
- Input Amount: Specify the amount to trade, and Uniswap will display the estimated received tokens based on current pool ratios.
- Approve and Swap: Approve the transaction in your wallet; once confirmed, your tokens are swapped instantly.
- Providing Liquidity (Optional): Users can also add tokens to pools to earn fees, becoming liquidity providers.
