Uniswap

Uniswap is a protocol built on the Ethereum blockchain that allows for decentralized token swaps. It’s one of the most popular decentralized exchanges (DEX) on the Ethereum network as of my knowledge cutoff in 2021. Unlike traditional, centralized exchanges, Uniswap doesn’t require an order book to facilitate trades. Instead, it uses a model called automated liquidity provision.

Here’s a simple breakdown:

1. Decentralization: There’s no central authority that holds your money. You hold your funds in your personal wallet and you directly interact with the protocol.
2. Automated Liquidity Provision: Uniswap allows users to trade directly with a liquidity pool. These pools are filled by users who deposit an equal value of two tokens. In return, they receive liquidity tokens, which can be used to reclaim their share of the pool, as well as a portion of the trading fees.
3. Token Swaps: Users can easily swap between ERC-20 tokens directly from their wallet through a simple web interface. The protocol automatically calculates the price based on the balance of each token in a liquidity pool.
4. Openness: Anyone can create a new liquidity pool for any pair of tokens. This makes it possible to trade virtually any ERC-20 token.
5. Non-custodial: The protocol is designed so that you maintain control of your tokens at all times, apart from the brief period when a transaction is being confirmed.

Uniswap is a significant player in the DeFi (Decentralized Finance) movement, which aims to recreate traditional financial systems with decentralized versions, eliminating the need for intermediaries like banks and brokers.