Uniswap

Centralized crypto exchanges use order books to connect buyers and sellers. Decentralized exchanges take a different approach by allowing users to trade against a pool of assets rather than individual counterparties.

Uniswap pioneered this model. The exchange uses automated market makers (AMMs), smart contracts that manage pools of cryptocurrencies into which users can deposit assets. The ratio of assets inside these pools — typically two paired cryptocurrencies such as ETH/USDC or ARB/USDT — determines their relative prices according to a mathematical formula.

Depositors are known as liquidity providers (LPs) and they receive a cut of trading fees charged on the pools where their assets are deposited. Traders can interact with the pool to exchange one asset for the other, changing the balance of assets and adjusting their relative prices. This facilitates trading without the need to find an immediate buyer or seller on the other side of the trade.

Uniswap originally launched on Ethereum in 2018, but has since expanded to a wide range of other blockchain networks. Users do not need to create an account or complete identity verification; instead, any user can connect directly with their crypto wallet to trade or provide liquidity.

The exchange’s native token, UNI, serves primarily as a governance asset. Holders can participate in decisions about the protocol's development, treasury and other governance matters.