What is Uniswap?
Uniswap is the largest decentralized exchange (DEX) operating on Ethereum and other networks. UNI is its governance token: holders vote on protocol development, treasury allocation, and fee parameters.
How it works
Instead of an order book, the protocol uses an automated market maker: users deposit asset pairs into liquidity pools, and exchange prices are determined by a mathematical formula based on the asset ratio in the pool. Liquidity providers earn a share of trading fees, while traders exchange tokens directly from their wallet.
Pros and cons
- Pros: trading without intermediaries and registration, smart contract transparency, leading position among DEXs.
- Cons: UNI holders' returns depend on governance decisions regarding fee distribution, smart contract vulnerability risks, DeFi regulatory uncertainty.