What Is It?
Uniswap is a decentralized exchange operating on Ethereum and other blockchains.
Uniswap allows users to provide liquidity and trade ERC20 tokens. Launched in November 2018, Uniswap has amassed a total value locked (TVL) of $4.0b as of 23 May 2022 and is currently available on Ethereum Mainnet as well as Layer 2 solutions – Optimism, Arbitrum and Polygon.
Uniswap V2 expanded trading pairs to support any ERC20 tokens, enabling auto-compounding on LP tokens. It also introduced flash swaps, which allowed users to withdraw up to the full reserves of any ERC20 token, provided that it is either paid for or returned by the end of the multi-step transaction.
Uniswap V3 introduces concentrated liquidity. In Uniswap V2, when a LP position is initiated, the liquidity is spread evenly to every possible price point of the underlying token pairs’ price distribution, resulting in low capital efficiency since the tail prices (e.g. BTCUSD @$100k) are rarely traded. In V3, liquidity providers can now specify the price intervals in which they are willing to deploy their capital. This has several implications:
- V3 LPs who specify trigger price intervals around the densest area of price distribution (e.g. close to VWAP) will earn trading fees more efficiently than V2;
- DEX users will experience lower slippage than in V2, when underlying token pairs trade between the price intervals where most LPs choose to concentrate their capital.
A useful visualization of the difference between V2 and V3 is shown here:
Tokens and Tokenomics
Note that there is a 4-year vesting period for the non-community member allocations. In 2024, a perpetual inflation rate of 2% per year will be imposed.
- Uniswap Dashboard – https://info.uniswap.org/#/
- Uniswap Documentation – https://docs.uniswap.org/
- Concentrated Liquidity In Depth Explanation – https://docs.uniswap.org/protocol/concepts/V3-overview/concentrated-liquidity
- Uniswap Token Address – 0x1f9840a85d5af5bf1d1762f925bdaddc4201f984