Uniswap is a decentralized exchange protocol built on
the Ethereum blockchain. Launched in 2018 by Hayden
Adams, Uniswap introduced a novel concept to the
cryptocurrency landscape: automated market making.
Traditional exchanges rely on order books, but Uniswap
takes a different approach by using liquidity pools to
facilitate trades. This approach has democratized
trading and liquidity provision, allowing users to
participate without the need for intermediaries.
The
protocol operates based on a mathematical formula known
as the "constant product formula." This formula ensures
that the product of token quantities remains constant in
a liquidity pool. When a user swaps one token for
another, the ratio between the tokens' quantities
adjusts, resulting in a change in price. This model
offers several benefits, including simplicity,
efficiency, and continuous liquidity provision.