What Is Uniswap (UNI)? A Simple Explanation

What Is Uniswap (UNI)?

Uniswap is a decentralized exchange, often shortened to DEX. With Uniswap, you can swap tokens without using a traditional centralized crypto exchange with an order book.

Uniswap works with an automated market maker, often shortened to AMM. Instead of buy and sell orders in an order book, swaps are carried out through smart contracts and liquidity pools. These are pools of tokens provided by users.

When you swap a token through Uniswap, you use the liquidity available in that pool.

The token of the Uniswap Protocol is called UNI. UNI is an ERC-20 token on Ethereum and is used for governance. UNI holders can delegate their voting power and vote on certain decisions about the protocol.

Since December 2025, protocol fees have been used for a token burn, which permanently removes UNI from circulation.

You do not need UNI to swap tokens or add liquidity to a pool.

The Uniswap Protocol is available on Ethereum and several other blockchain networks. Uniswap Labs develops interfaces, infrastructure, and tools around Uniswap, among other things. Uniswap Labs is a company and is separate from the protocol itself and from governance by UNI holders.

Key Takeaways

• Uniswap is a DEX where you can swap tokens through liquidity pools.
• UNI is the governance token of the Uniswap Protocol.
• Traders swap against pool liquidity, not against a traditional order book.
• Liquidity providers can earn swap fees, but they also take on risks.
• Low liquidity and large swaps can cause price impact and slippage.

How Does Uniswap Work?

Uniswap works differently from traditional, centralized trading platforms. Those platforms usually use an order book that matches users' buy and sell orders. Uniswap does not use a central order book, but liquidity pools with tokens provided by users.

Such a pool contains reserves of tokens. Suppose a pool contains token A and token B. Someone who wants to swap token A for token B sends token A to the pool and receives token B in return. The protocol calculates how much token B the user receives based on the available liquidity and the pool's rules.

A swap changes the amounts of tokens in the pool. That also changes the price at which the next swap can be executed.

The users who make tokens available to a pool are called liquidity providers. They make it possible for other users to swap and can receive part of the swap fees in return.

How much a swap affects the price depends in part on the available liquidity around the current price. If there is little liquidity there, the same swap can have a bigger price impact. Especially with larger swaps, the final price can therefore differ from the price you see beforehand.

Uniswap has multiple protocol versions. Uniswap v4 is the newest version, while pools from earlier versions such as v2 and v3 can continue to exist alongside it.

In Uniswap v4, pools are managed through one central PoolManager contract. V4 also supports so-called hooks. These are extra pieces of smart contract logic that can be attached to a pool to adjust behavior around swaps, liquidity, or fees, for example.

Uniswap (UNI) Overview

How Do Liquidity Pools and Automated Market Making Work at Uniswap?

Uniswap determines the swap price within liquidity pools with an automated market maker, or AMM.

In the original Uniswap setup, this uses the formula x × y = k. Here, x and y stand for the amounts of both tokens in the pool. If someone buys one token and adds the other token, the ratio between the tokens changes. That also changes the price.

Example: Suppose someone buys a large amount of token A from a pool all at once. Then less token A remains in the pool, which makes token A more expensive during the swap. The larger the swap is compared with the available liquidity, the bigger the price impact usually is.

Uniswap v3 and v4 use concentrated liquidity. This lets liquidity providers choose a price range where their liquidity is available. That way, the same capital can be used more efficiently within that price range.

If the market price moves outside the chosen range, that liquidity is not active for swaps. The liquidity provider then does not earn swap fees on that position until the price moves back into the chosen range.

What Role Does UNI Play Within Uniswap?

UNI is the governance token of the Uniswap Protocol. Anyone who owns UNI can activate voting power by delegating the tokens to an address. That can be their own address or someone else's address that votes on the holder's behalf.

The UNI tokens do not need to be transferred or locked up for this. The amount of delegated UNI determines how much voting weight an address has.

Through governance, UNI holders can decide on treasury spending, protocol fees, and possibly minting additional UNI, among other things. To submit a binding onchain proposal, 1 million delegated UNI is currently required. A proposal must then receive at least 40 million UNI votes in favor to pass.

When UNI launched in 2020, 1 billion UNI were minted. There is currently no active inflation. Governance does have the ability to mint additional UNI each year, up to a maximum of 2% of the total supply. So far, this option has not been used.

Since December 2025, protocol fees have been activated. The collected protocol fees are used to permanently burn UNI. UNI holders do not receive these protocol revenues directly.

How Do Swaps and Transaction Fees Work on Uniswap?

When you swap, you give one token and receive another token back from a liquidity pool. You pay a swap fee for a swap.

How high that fee is depends on the protocol version and the pool. Uniswap v2 charges a swap fee of 0.30%. In Uniswap v3, fee tiers include 0.01%, 0.05%, 0.30%, and 1.00%.

In Uniswap v4, fees are more flexible. Pools can use fixed or dynamic fees. With hooks, the logic around fees, for example, can be adjusted further.

The swap fee does not always go entirely to liquidity providers. In pools where protocol fees have been activated, part of the swap fee goes to the protocol. The remaining part goes to liquidity providers with active liquidity.

In addition to the swap fee, you pay network fees to carry out the transaction on the blockchain. Swap fees and network fees are therefore different costs.

Another term you often come across with swaps is slippage. This is the difference between the expected price of a swap and the price at which the swap is ultimately executed. With low liquidity, large swaps, or strong price movements, slippage can be greater.

How Did Uniswap Start?

Hayden Adams developed the Uniswap Protocol in 2018. On November 2, 2018, the first version was publicly announced and launched on Ethereum mainnet.

Uniswap v1 was a proof of concept for an automated market maker. The idea was that users could add tokens to liquidity pools so others could swap without needing a centralized exchange with an order book.

In May 2020, Uniswap v2 followed. This version made direct swaps between different ERC-20 tokens possible.

In September 2020, UNI was launched as the governance token of the Uniswap Protocol.

What Are the Benefits of Uniswap?

Uniswap has a number of important features:

• Permissionless swaps: Users can swap tokens through smart contracts without a centralized exchange having to execute the transaction.

• Anyone can add liquidity: Users can make tokens available to liquidity pools and can receive swap fees for doing so.

• No central order book needed: Swaps are executed against the liquidity in a pool instead of through buy and sell orders from other users.

• Concentrated liquidity: In v3 and v4, liquidity providers can choose the price range where their liquidity is active. That can make capital more efficient within that range.

• Customizable pools in v4: With hooks, developers can add extra rules and features to pools, for example around swaps, liquidity, and fees.

What Are the Downsides of Uniswap?

Uniswap also has a number of important things to keep in mind:

• Price impact and slippage: With low liquidity or large swaps, the final exchange rate can be less favorable than expected.

• Impermanent loss: Liquidity providers can end up with losses compared with simply holding the tokens when prices change sharply.

• Active management of concentrated liquidity: In v3 and v4, a position does not earn swap fees when the market price moves outside the chosen price range. Adjusting such a position can create extra network fees.

• Smart contract and token risks: Bugs in smart contracts can lead to losses. Because Uniswap is permissionless, there can also be tokens and pools that are unreliable or risky.

• Network fees: Swapping and adding, adjusting, or removing liquidity requires onchain transactions and therefore comes with network fees.

Conclusion

Uniswap is a decentralized exchange that lets users swap tokens through liquidity pools. Instead of a traditional order book, the protocol uses an automated market maker to determine how many tokens a user receives in a swap.

Users can provide liquidity themselves and receive swap fees in return. In v3 and v4, liquidity providers can also choose the price range in which their liquidity is active.

UNI is the governance token of Uniswap. UNI holders can delegate their voting power and vote on decisions about the protocol. Since December 2025, protocol fees have also been used to permanently burn UNI. UNI holders do not receive these protocol revenues directly.

Uniswap makes token swaps possible without a centralized exchange, but it also comes with risks. Price impact, impermanent loss, smart contract risks, and network fees are important things to keep in mind.