Glossary · U
Uniswap
The largest decentralised exchange by volume, operating on Ethereum and multiple Layer 2 networks. Uniswap pioneered the AMM (Automated Market Maker) model in 2018 and introduced concentrated liquidity in Uniswap V3 (2021), allowing liquidity providers to allocate capital within custom price ranges for greater capital efficiency.
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How Uniswap works in practice
Uniswap is the largest DEX and the reference implementation of the constant-product AMM. Its later versions introduced concentrated liquidity, letting providers place capital within a chosen price range rather than across the whole curve.
Worked example
Providing liquidity between 2,800 and 3,200 rather than from zero to infinity concentrates capital where trading actually happens, earning several times the fees per dollar deposited. If the price leaves that range, the position stops earning entirely and sits wholly in one asset.
Figures are illustrative and chosen to be checkable, not live market data.
The mistake that costs people money
Concentrated liquidity is an active position, not a passive one. A range left unmanaged through a trend earns nothing and holds only the asset that fell. The higher fee yield is compensation for that management burden.
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Uniswap: common questions
- What is Uniswap?
- The largest decentralised exchange by volume, operating on Ethereum and multiple Layer 2 networks. Uniswap pioneered the AMM (Automated Market Maker) model in 2018 and introduced concentrated liquidity in Uniswap V3 (2021), allowing liquidity providers to allocate capital within custom price ranges for greater capital efficiency.
- How does Uniswap work in practice?
- Uniswap is the largest DEX and the reference implementation of the constant-product AMM. Its later versions introduced concentrated liquidity, letting providers place capital within a chosen price range rather than across the whole curve.
- Can you give an example of Uniswap?
- Providing liquidity between 2,800 and 3,200 rather than from zero to infinity concentrates capital where trading actually happens, earning several times the fees per dollar deposited. If the price leaves that range, the position stops earning entirely and sits wholly in one asset.
- What do people get wrong about Uniswap?
- Concentrated liquidity is an active position, not a passive one. A range left unmanaged through a trend earns nothing and holds only the asset that fell. The higher fee yield is compensation for that management burden.