Uniswap
Uniswap is a decentralized token exchange protocol built on Ethereum that allows the direct swapping of tokens without the need to use a centralized exchange.
On Uniswap, you can simply swap your tokens directly from your wallet without depositing tokens to an exchange, place an order on the order book, and then withdraw the swapped tokens as it is in the case of Centralized Exchanges.
All you need to do is send your tokens from your wallet to Uniswap’s smart contract address, you will receive your desired token in return in your wallet. There is no order book and the token exchange rate is determined algorithmically. All this is achieved via liquidity pools and the automated market maker mechanism.
Liquidity Pools
Liquidity pools are token reserves that sit on Uniswap’s smart contracts and are available for users to exchange tokens with. For example, using the ETHDAI trading pair with 100 ETH and 20,000 DAI in the liquidity reserves, a user that wants to buy ETH using DAI may send 202.02 DAI to the Uniswap smart contract to get 1 ETH in return. Once the swap has taken place, the liquidity pool is left with 99 ETH and 20,202.02 DAI.
If someone buys ETH using DAI, ETH will be removed from the liquidity pool while DAI will be added into the liquidity pool.
What is Automated Market Maker Mechanism
Prices of assets in the pool are algorithmically determined using the Automated Market Maker (AMM) algorithm. AMM works by maintaining a Constant Product based on the amount of liquidity on both sides of the pool.
How to get a token added on Uniswap?
Unlike centralized exchanges, Uniswap as a decentralized exchange does not have a team or gatekeepers to evaluate and decide on which tokens to list. Instead, any ERC-20 token can be listed on Uniswap by anyone and be traded as long as liquidity exists for the given pair. All a user needs to do is interact with the platform to register the new token and a new market will be initialized for this token.
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