Uniswap brings to life the reality of a truly decentralized exchange, and the possibility of exchanging any token without a middleman. Anyone with an Ethereum address can contribute to its liquidity, and earn from it.
Picture a bank, called The Bank of Uniswap. The Bank of Uniswap works exclusively in foreign exchange markets — helping people exchange one currency into another, while charging a small fee. You too, can earn a portion of these fees by depositing your own currency into the Bank of Uniswap — which it uses to help more people convert one currency to another.
What makes the Bank of Uniswap different from any other financial institution, then?
Well, for one — it exchanges cryptocurrency instead of fiat currency. It is also entirely decentralized, and does not have anyone “in-charge” of its day-to-day operations, handing the responsibility to smart contracts on the Ethereum blockchain instead.
How does Uniswap Work?
At its core, Uniswap is two smart contracts — a “Factory” contract and an “Exchange” contract — working together in tandem with an open-source front-end client.
Factory contains an exchange registry, and a method to deploy the Exchange contract for a particular ERC20 token. In turn, Exchange can support any ERC20 token. Every ERC20 token therefore, by design, uses its own Exchange smart contract.
Uniswap is built entirely on the Ethereum blockchain, and is not dependent on any external processes.
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