Review on Uniswap by Saparov Meylis

Uniswap is a fully decentralized protocol for automatically providing liquidity in Ethereum.

A simple formalized equation provides continuous liquidity for thousands of users and hundreds of applications.



Uniswap gives developers, liquidity providers and traders the opportunity to participate in a financial market that is open and accessible to everyone.

When it comes to decentralized exchanges, the first thing we think about is bad UX and thin order books. For those of us who remember EtherDelta's clunky user interface, it was pretty clear that there was a large window of opportunity for a simplified yet effective DEX.



Fortunately, Uniswap does just that. DEX allows you to trade any Ethereum based tokens directly through the web 3 wallet without any deposits or withdrawals to a centralized order book. Moreover, Uniswap liquid pools (described below) have little or no effect on price for the vast majority of trades.



As a regular user, Uniswap provides a universal option to exchange any ERC token in a few clicks, without worrying about KYC, storage or phishing. Using smart contracts, Uniswap can offer autonomous intra-corporate transactions at minimal cost.



Uniswap uses global liquidity pools to create unique markets for any two assets. Using an automated market maker (AMM), the exchange can set prices to the end user according to some predefined set of rules.



Uniswap uses a variation called the Permanent Market Model. In particular, thanks to a feature that allows the exchange to always provide liquidity, no matter how large the order size or how small the liquidity pool is.



For this to work, the spot price of any given asset increases with the desired quantity. While this may cause larger orders to suffer from increased price influence, the system never has to worry about running out of liquidity. In other words, Uniswap always maintains aggregate supply in its smart contracts, which means that the larger the liquidity pool, the less chance of slippage on any trading pair.



To reduce risk at launch, Uniswap allows traders to specify a maximum price when placing an order. Therefore, if the mining front triggers an order, the user cannot be forced into accepting the worst price. While they may miss a trade, they won't be affected by the higher price tag. Combined with expiring orders that prevent miners from holding signed transactions and processing them at a better price, it is clear that Uniswap has a very user-centered attitude.