I want to provide an important review of Uniswap, which simplifies the explanation of the technology behind it, with a focus on Uniswap's fourth version. There are no surprises here; Uniswap operates by on the Ethereum blockchain.
Initially, there are liquidity providers (LPs), which eventually form a set of smart contracts. These LPs add funds to the Automated Market Maker (AMM) pool, creating markets. They deposit equal amounts of two tokens, such as 50% ETH and 50% ARB in the ETH/ARB pool. When traders utilize this liquidity, a formula ensures that the ETH-ARB balance remains in equilibrium. Now that you understand the primary use, it's important to note that Uniswap v4 allows you to create pools with flexible fees, execute on-chain limit orders, and function as a time-weighted average market maker (TWAMM) to efficiently handle large orders over time.
Behind this model, there is an architecture. Uniswap v4 reduces costs and enhances efficiency through a unique "singleton" contract model that consolidates all pools into a single smart contract. This approach, along with hooks, creates a powerful platform that enables quick and secure customization of pools and efficient routing across multiple pools.
Lastly, Uniswap employs an Automated Market Maker (AMM), which is decentralized and uses mathematical algorithms to determine asset prices, unlike traditional exchanges. It opens up market creation to anyone on a blockchain.
While what Uniswap offers as a DEX may not be entirely unique, with over 1 trillion in transactions and high daily usage, it has become a dominant force in the space. Its performance has remained stable throughout the years. 5 stars. Show Less
