What is Uniswap and how does it work?

Uniswap is a decentralized exchange that lets people swap one token for another directly from their wallets. Instead of an order book, it uses pools of tokens and a pricing formula, an approach known as an automated market maker. Uniswap's documentation describes it as a protocol built to work without trusted intermediaries.

How does Uniswap work as an automated market maker?

Each Uniswap pool holds two tokens. According to Uniswap's docs, anyone can deposit both tokens in equal value to become a liquidity provider and receive a share of the pool. You can read more in what is a liquidity pool.

When someone trades, they add one token to the pool and take out the other. In the original design, the pool keeps the product of its two reserves constant, often written as x times y equals k. The bigger a trade is compared with the pool, the worse the price gets, which is a source of slippage. Prices only move through trades, so when Uniswap drifts away from other markets, arbitrage traders pull it back in line.

How much are Uniswap fees?

Uniswap's fee structure depends on the version of the pool. According to its developer docs:

• Version 2 pools charge a flat 0.30% per swap.
• Version 3 pools use fee tiers such as 0.05%, 0.30% and 1%, and liquidity only earns fees when the price is inside the range a provider picked.
• Version 4 pools let creators set any fee, and add-on contracts called hooks can change fees based on market conditions.

These swap fees are separate from network gas fees, which go to the blockchain, not to Uniswap.

What is the UNI token used for?

UNI is Uniswap's governance token. Holders vote on proposals that change the protocol.

In December 2025, The Block reported that a proposal called UNIfication passed with about 99.9% support. It turned on a protocol fee, so a share of swap fees now goes toward buying and burning UNI instead of going only to liquidity providers. Uniswap's docs say this fee is active on all v2 pools and some v3 pools, and on v2 it takes 0.05 percentage points of the 0.30% fee. The proposal also included a one-time burn of 100 million UNI and ended fees on Uniswap Labs' own app and wallet. Liquidity providers also face impermanent loss, which fees may or may not offset.

What is Unichain?

Unichain is an Ethereum layer 2 network built for DeFi. Forklog reported that Uniswap Labs launched its mainnet on February 11, 2025, using Optimism's OP Stack. Blocks started at about one second. Under the UNIfication proposal, Unichain's net sequencer fees also feed into UNI burns.