Uniswap, established in 2018 and running on the Ethereum blockchain, is a popular decentralized trading protocol designed to facilitating automated trading of ERC-20 tokens (tokens hosted on the Ethereum blockchain).
Traders directly interact with a smart contract that dictates the trade price between tokens removing the need for a central entity to help facilitate the trade.
Liquidity providers add funds to the liquidity pool for each trading pair by depositing an equivalent value of the two tokens (e.g. AAVE and ETH). In the simplest way, when a trader draws from a liquidity pool, the mathematical formula will set the price so that the balance of ETH and AAVE remains in balance. Each trade generates a fee for liquidity providers.
In 2020, Uniswap introduced the UNI token to enable community ownership over the protocol –furthering decentralization –by allowing stakeholders to vote on key protocol changes and development initiatives.
Uniswap is one of the first and one of the largest decentralized exchange (or DEX). It allows users worldwide to trade crypto without an intermediary.