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How does a decentralised exchange like Uniswap work?

Jodie Humphries avatar
Jodie Humphries
- 2 min read
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Uniswap is a decentralised crypto trading exchange that enables trading of ERC20 tokens on Ethereum and is also a financial marketplace for DeFi apps. Uniswap is the largest crypto project built on top of Ethereum

Disclaimer

This article is over two years old, last updated on April 13, 2022. While RateCity makes best efforts to update every important article regularly, the information in this piece may not be as relevant as it once was. Alternatively, please consider checking recent cryptocurrency articles.

What is a decentralised exchange?

In a centralised exchange such as Binance, Coinbase or Kraken, there is a central authority - the owners. Trading is based on an order book system, meaning that buy and sell orders are listed. Buy and sell orders at the same price need to be matched. If there are no matching orders, it is referred to as a ‘low liquidity’ situation and may make it difficult for traders to execute buy or sell orders. Uniswap is a completely different type of cryptocurrency exchange, and enables trading using liquidity pools that automatically create a ‘market’. 

Uniswap is different from other exchanges as there is no centralised control or order book. There is no listing process or fees for ERC20 tokens on the Uniswap exchange. Any token can be launched if there is a liquidity pool. This is a refreshing change from most other exchanges that charge a high listing fee for new tokens. 

Decentralised exchange volumes grew rapidly in 2021, and Uniswap led with the highest 24 hour transaction volume. This platform is now rivalling some of the large centralised exchanges based on daily volume.

How to use Uniswap?

Uniswap coins

The Uniswap token is called UNI. One billion UNI were minted when it first started in 2020, to be made accessible over the following four years. Of these, at least 60 per cent have already been assigned to community members. 

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Product database updated 23 Dec, 2024

This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.