Liquidity pool
A smart-contract pool holds assets that can be used for swaps. The exact design depends on the protocol version and pool configuration.
Independent educational guide
Understand Uniswap from first principles.
A practical explanation of the Uniswap protocol, automated market makers, liquidity pools, protocol versions, UNI governance and the risks that matter.
Information only. No wallet connection, trading interface, price prediction or investment recommendation.
Protocol conceptOnchain
AToken A
1.00
BToken B
≈ output
Wallet
→
Liquidity pool
AMMPool-based pricing
LPsSupply liquidity
ContractsExecute rules
01 Decentralized exchange protocol02 Automated market maker03 Liquidity pools04 Permissionless markets05 UNI governance
Protocol in 60 seconds
What is Uniswap?
Uniswap is a decentralized exchange protocol built around automated market maker smart contracts. Instead of a centralized exchange matching buy and sell orders, Uniswap pools hold assets and apply programmed rules to enable onchain swaps and liquidity provision.
People commonly use the word “Uniswap” to describe several related things, including the underlying protocol, interfaces built on top of it, governance and ecosystem products. They are not all the same thing.
AMM-basedOnchainSelf-custodial interactionPermissionless
Core ideas
Four concepts explain most of Uniswap.
You do not need to start with complex formulas. First understand what the protocol is doing at a high level.
Automated market maker
An AMM uses smart-contract logic and liquidity rather than a traditional centralized order book to facilitate trading.
Liquidity provider
Liquidity providers allocate assets to pools. They may earn applicable fees while also taking market and smart-contract risk.
Price impact
A swap changes pool state. Large trades relative to available liquidity can move the effective execution price more significantly.
Slippage
Execution may differ from an earlier quote because markets, routes and pool state can change before a transaction settles.
Gas
Onchain actions require network execution. Gas costs depend on the network, transaction complexity and current demand.
How it works
A simplified swap lifecycle.
The exact route can be more complex, but a typical interaction follows this basic logic.
Choose assets
A user selects the token being supplied and the token expected in return.
Find liquidity
An interface or router can identify pools and paths that may be used to execute the requested swap.
Calculate a quote
Pool state, fees, liquidity and price impact determine the expected transaction outcome.
Review and sign
The user reviews the transaction and confirms it using a compatible self-custodial wallet.
Settle onchain
Smart contracts execute the transaction according to protocol rules and the current blockchain state.
Protocol versions
Uniswap v2, v3 and v4 are different design generations.
New versions do not simply erase older ones. Each version has its own architecture and liquidity model.
Simple two-token pools
- Classic constant-product AMM design
- Liquidity distributed across the full price curve
- Conceptually simple pool model
Concentrated liquidity
- LPs can choose price ranges
- Capital can be allocated more precisely
- Positions can require more active management
More programmable pools
- Hooks can add custom pool logic
- Singleton architecture
- Flash accounting and native ETH support
Feature
v2
v3
v4
Liquidity model
Full range
Concentrated ranges
Concentrated ranges
Customization
Limited
Fee tiers & ranges
Hooks & pool logic
LP complexity
Lower
Higher
Potentially higher
Liquidity
Providing liquidity is not a fixed-yield product.
Liquidity providers may receive a share of applicable fees, but their result depends on price movement, active ranges, pool parameters, trading activity, network costs and other risks.
Questions to understand first
- What assets does the pool contain?
- Which protocol version is being used?
- What fee tier or hook configuration applies?
- Can the position move out of range?
- What happens if the assets move sharply relative to each other?
UNI
Governance
What is the UNI token?
UNI is the governance token of the Uniswap protocol. UNI can be delegated, and delegated voting power can be used in governance according to the applicable governance process.
Governance participation should not be confused with a guarantee of economic return. Token ownership also does not remove market, smart-contract or regulatory risk.
Risk awareness
What can go wrong?
Decentralization changes the risk model; it does not eliminate risk.
Smart-contract risk
Code can contain vulnerabilities. Third-party contracts, integrations and hooks can introduce additional risk.
Token risk
Permissionless markets can contain fake, malicious, illiquid or economically fragile assets.
Market risk
Prices can move rapidly and liquidity conditions can deteriorate, affecting execution and position value.
LP divergence
A liquidity position can underperform simply holding the underlying assets when relative prices move.
Wallet & phishing risk
Malicious websites, approvals and signatures can lead to irreversible loss of assets.
Network & legal risk
Network conditions, infrastructure changes and local rules may affect access, cost or permitted use.
FAQ
Common Uniswap questions.
Is Uniswap a decentralized exchange?
Uniswap is commonly described as a decentralized exchange or DEX. More precisely, the Uniswap Protocol is a set of onchain smart contracts that applications and users can interact with for swaps and liquidity.
Does Uniswap use an order book?
The core AMM design does not rely on a conventional centralized order book. Instead, swaps use liquidity pools and smart-contract rules.
What is concentrated liquidity?
Concentrated liquidity, introduced in Uniswap v3, allows liquidity providers to allocate capital inside selected price ranges rather than across the entire possible price curve.
What are hooks in Uniswap v4?
Hooks are smart contracts that can execute custom logic at specific points in a pool's lifecycle. They make pools more programmable, while potentially introducing additional logic and risk that users should evaluate.
What does UNI do?
UNI is the protocol's governance token. Delegated UNI provides voting power in Uniswap Governance under the current governance process.
Is using Uniswap risk-free?
No. Relevant risks can include price volatility, malicious tokens, smart-contract vulnerabilities, transaction mistakes, phishing, wallet compromise, slippage and liquidity-provider losses.
Primary sources
Continue with official material.
Technical details and governance rules can change. Use primary sources when you need current information.